Emerging markets have suffered from slowing growth, struggling currencies and weak exports this year. But Poland showed resilience amid the downturn and has been able to avoid recession even with the surrounding European problems (read: Time to Invest in Poland ETFs?).
Polish economic growth accelerated from 0.4% in the first quarter to 0.8% in the second quarter on the back of rising exports and domestic consumption. The growth is above market expectation of 0.7%. Polish manufacturing index (PPMIQ) rose comfortably above the 50 mark to 51.1 in July from 49.3 in June.
Further, Poland has been able to reverse its longest trend of trade deficits in the second quarter as exports outstripped imports. The nation recorded its first trade surplus in at least 13 years, boosting confidence in the economy. This suggests that global conditions are improving and the country’s major trading partners (such as Germany, Italy and France) are rebounding slowly (read: 4 Outperforming ETFs Leading Europe Higher).
These data suggest that economy will continue to improve in the second half as well. The IMF projects the European Union's largest emerging economy to grow 1.1% this year and 2.2% in the next. This projection is far in excess of what many other economies are seeing.
Though the current unemployment rate of 13.2% is the major concern for the nation’s growth, annual inflation of 1.1% is under control. The central bank expects inflation of 0.8% this year and 1.2% in the next.
Moreover, the Eastern European nation arguably has a much better investing climate compared to its peer countries. This is because Poland has far less worries on the corruption front and has a well-educated and tech savvy workforce. In fact, Poland currently ranks among the top 40 countries from a competitive standpoint.
Thanks to this competitiveness and large size (the nation is one of the 20 largest economies in the world), it could be time to give Poland a closer look. Poland still enjoys a stable credit rating from the three major agencies and its financial system remains steady (read: Poland: A Better Eastern Europe ETF?).
Poland ETFs in Focus
Given strong optimism, Poland is the best-performing emerging country so far. The ETFs tracking the country are leading the way among the tumbling emerging markets.
Investors willing to tap the opportunity in this growing economy could choose from the following two ETFs, any of which could be a decent pick. Both products are clearly outpacing the broader emerging market funds by wide margins over the past few weeks (read: Avoid These 3 Emerging Market ETFs).
iShares MSCI Poland Investable Market Index Fund (EPOL)
This fund provides exposure primarily to large cap Polish stocks by tracking the MSCI Poland IMI 25/50 Index and holds 43 securities in its basket. The product is heavily concentrated across both securities and sectors.
About half of the portfolio is skewed towards financials while materials and energy also get double-digit allocations in the fund (read: 3 Surging Financial ETFs Beating the Market). In terms of holdings, the top three firms collectively make up for more than 31%, suggesting that the top firms dominate the returns of the fund.
The fund has amassed $321.7 million in its asset base while charges 62 bps in fees per year from investors. EPOL has added nearly 13% over the trailing two months but is down 5% year-to-date.
Market Vectors Poland ETF (PLND)
This ETF tracks the Market Vectors Poland Index, holding 30 stocks in its basket. Like its iShares counterpart, the fund is a large cap centric and concentrated on the top 10 holdings at 60%.
Again here, financials take the top spot at 40.8%, closely followed by energy (15.4%), utilities (11.8%) and materials (10.7%). The product is less popular with AUM of just $27.4 million. The ETF charges 61 bps in fees and expenses (see more in the Zacks ETF Center).
The fund added nearly 13.7% over the past two months, making up for most of the losses this year. The product is down only 0.71% from the year-to-date look.
Though Poland is much better positioned than its peers in the region, the country is still a risky investment for the long term given the high unemployment rate, regional banking issues and reliance on some still struggling Euro zone export partners (read: all the European ETFs here).
While a further upward move in the near term is definitely possible in these ETFs, the long-term prospects are bleak, suggesting investors to be cautious while playing in this market.
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