Even after rallying from its October 2001 low, the Polish market still looks to have room for growth...
Even after rallying from its October 2001 low, the Polish market still looks to have room for growth.
The country's WIG index was up 32.2% in local currency terms to 155092.1 at close of trading on 11 January from its low point in October last year.
However, the fact it is still well below its 17847.5 December 2000 position indicates there is still room for upward movement, says Jonathan Asante, manager of the Emerging Markets fund at Framlington.
Asante believes Poland has strong fundamentals in place which makes the relatively high volatility of the index hard to understand. 'Inflation has been kept low by tight fiscal policy,' he says. 'Foreign direct investment should remain robust as the country has a cheap workforce.'
Neil Gregson, portfolio manager, emerging markets, at Credit Suisse, is also positive on Poland. He points to falling yields on government bonds and more efficient mechanisms encouraging pension funds to increase their weighting in equities.
Asante also sees the country's domestic pension fund involvement as a strong positive as Polish law prevents trustees from investing more than 5% overseas, something that ensures demand will remain high.
Gregson acknowledges that entry into the EU would end this law but points to a number of positives that membership will bring for the EU as well as Poland. He says: 'Poland has a large and young population that will help to solve labour shortage problems in the EU. Obviously, the country is looking forward to getting subsidies to help improve its infrastructure.'
Both Gregson and Asante see a broadly positive picture in Hungary but say the limited number of stocks make it hard to find many opportunities.
One company that stands out is the bank OTP, according to Asante.
He says: 'It is the most profitable bank I've ever seen. Its returns are high, the P/E ratio is decent and it has scope to grow, which should be relatively easy as it is a monopoly.'
Gregson says companies in Hungary and Poland are more influenced by global trends than domestic demand. 'Matav, the Hungarian telecoms company, depends on the health of the global telecoms sector,' he says, and 'the country's main utility, Mol, is influenced by world energy prices.'
Asante cites the technology sector in Poland as an example of an area where companies have benefited from a good run elsewhere. He says that Companies like Prokom, Computerland and Softbank have performed well on the back of the Nasdaq.
Despite the strong performance, however, Asante is not bullish on the sector and says companies that have performed relatively well have relied on contract business with government and banks.
'Once these contracts are completed,' he says, 'there is not much scope for expansion. These companies are not high quality and there is little human capital.'
One potential problem Poland could face is falling investment by hedge funds. Currently, there is interest in high-yielding government debt but that is likely to fall away rapidly as yields drop to reflect the lower interest rates that are a requirement of entry into the EU. Asante adds that large flows of money in and out of the country could herald an unhelpful period of exchange rate volatility.
Room for growth aided by strong economy.
Hungarian banking sector highly profitable.
Sizeable subsidy on joining the EU.
Limited investible universe.
Hedge funds may pull out of Poland.
Polish tech sector is low quality.
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