How does investing in Poland look from the top-down and bottom-up?
BY Staff | September 6, 2019
After years of dramatic post-Soviet growth, Poland is a major contender within the global marketplace. Yet, it’s a mixed bag for institutional investors, who are finding both opportunities and limitations in the market.
The country is holding up well in an increasingly challenging global environment where other economies are seeing growth slow, said Rachel Van Elkan, the International Monetary Fund’s mission chief to Poland and Switzerland, speaking on Canadian Investment Review‘s podcast “Pension Passport.”
“Poland has seen one of the longest stretches of continuous positive growth in the world at more than 25 years. As a result, poverty, unemployment and income inequality have all declined sharply. Also, fiscal and external imbalances have declined, which helped shore Poland’s financial markets from regional and global turbulence.”
However, the country isn’t without certain macroeconomic challenges, she noted. “Poland is at an advanced state of demographic transition. The working age population is already shrinking and forecast to decline by about one percentage point per year through the middle of the century. This will intensify the shift from excessive labour to labour scarcity. Large inflows of foreign workers in recent years, which account now for more than five per cent of employment, have helped somewhat, but other countries in the region, including those with higher wages than Poland, also face labour shortages and are competing for foreign workers.”
For institutional investors looking to allocate to the country, certain bright spots are worthy of particular attention, said Rebecca McVittie, investment director for emerging market equities at Fidelity International, also speaking on the podcast. “Video gaming, in many respects, is an area which we associate with countries like China where development has been very prolific.
“In the case of Poland, one of the things that the gaming industry benefits from is a number of developers who are very well educated . . . but the labour force is not expensive. So companies are able to access cheaper labour than in many other parts of the world with very high education standards.”
Within equities overall, foreign ownership has been on the rise with the inflow of passive capital, added McVittie.
However, opportunities are still limited. “If we think of this particular country in the context of emerging markets, in many respects it’s what I would describe as more developed market-esque as an economy. In that regard, some of the areas where we typically find opportunities are much more saturated.”
As a bottom-up stock picker, Poland can be frustrating from an equity perspective because the macro looks so attractive, said Julian Mayo, senior vice-president and chief investment strategist at Fiera Capital, on the podcast. In reality, the composition of Poland’s stock market is heavily tilted towards state-owned enterprises, he noted, highlighting that more than three quarters of the stock market is comprised of SOEs.
“The boards tend to be elected by the government and they tend to be acting often in the interests, really, of the government and of broader government-linked, if you like, social measures, rather than necessarily acting on behalf of all shareholders, including foreign minority shareholders such as ourselves.”