Eastern European economies are developing strongly but Poland still struggles to bring its economy i...
Eastern European economies are developing strongly but Poland still struggles to bring its economy in line with EU requirements.
Peter Gray, fund manager on Gartmore's emerging markets desk, says the country has spent the last 10 years gearing for entry to the EU, going through a period of painful reform. Despite this the country still has a structural problem, with high interest rates aimed at reducing domestic consumer demand, but a currency that gets stronger with every rate rise, he says.
Gray believes the way out of this vicious circle is to impose fiscal discipline but feels the government is relying too heavily on revenue-generating 'one-offs' like the sale of mobile telephone licenses.
Gabor Sitanyi, director of Schroders emerging European desk, advocates a two tiered approach to maximising gains from Poland, which top-down is battling with a large budget deficit, overheating economy and a minority government that is not in a position to make tough fiscal decisions.
Poland offers greater opportunities when approached with a bottom up view, according to Sitanyi, with bargains to be found in cross-sectoral stocks.
The country has a reasonably deep market by eastern European standards with six to eight banks to select from and a lot of choice in IT and media as well as different methods of getting exposure to the telecom sector.
Electricity company Elektrim has a 51% stake in Poland's largest mobile operator, PTC, which has a market cap of $5bn. Elektrim is currently trading on a market cap below $1bn and, with an investment that is effectively worth $2.5bn, Sitanyi believes the company is undervalued.
KGHM, a copper manufacturer, is another stock Sitanyi feels will benefit from its indirect play on the mobile and fixed line segments of the telecoms market. He adds: "KGHM is also a perfect buy if you're concerned about the Polish currency because it is a big exporter and will benefit if the currency devalues."
Gray says the market has benefited from the privatisations of Polish Telecom and national oil company, PKN Orlen. Unlike Sitanyi, he is concerned that the oil company has a fixation with telecoms and is investing actively in the mobile market.
He says: "The Polish stock market is characterised by wide choice of small to medium size companies to invest in and the arrival of big, privatised companies gives us a more liquid access to the market."
Banks and telecoms account for around 80% of Poland's market cap, according to Sitanyi while Gray says he will watch the telecoms market for the next six to 18 months because that is where the growth is.
Sitanyi is moderately underweight the MSCI Emerging Europe weighting of 18% but believes the market will rally strongly once EU membership looks likely. He says: "The Greek market started to rally three years ahead of its Emu membership, with the market tripling in value over two years. If the Polish market thinks the country will realistically join in say, 2004-05, we will see a rally by 2001-02."
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