A Guide to Investing in Poland
Invest in Poland with ETFs and ADRs
Poland’s high-income economy is the sixth largest in the European Union and historically one of the fastest growing. After economic liberalization in the 1990s, the country’s gross domestic product ("GDP") expanded at roughly 3% per year until the European Sovereign Debt Crisis, although it was the only country to avoid a decline in GDP growth in the European Union. Here is a look at Poland's economy, with tips on how to invest in the country, along with the benefits and risks that international investors should consider.
Poland’s Robust Economy
After the collapse of the COMECON trading bloc in 1991, Poland moved rapidly to increase trade throughout the European Union. The $1.11 trillion economy, by purchasing power parity as of 2017, is now focused on manufacturing machinery and transport equipment that it exports primarily to Germany, with generally stable credit ratings, strong growth, and manageable public debt.
Since the country lies outside of the Eurozone, its own currency was permitted to depreciate throughout the regional crisis and boost exports. The unemployment rate has also remained lower than the European average, reaching just 7.1% by June 2017. The country's economic growth rate remains one of the highest in Europe and is expected to reach 3.3% by the end of 2017.
The Polish economy is relatively open to foreign investors and entrepreneurs with various incentives design to attract both parties. However, the World Economic Forum ranked the country near the bottom of OEDC countries for clarity, efficiency, and neutrality of legal framework used by firms to settle disputes, a key concern for corporations.
Investing in Poland with ETFs
The easiest way to invest in Poland is using exchange-traded funds ("ETFs"), which offer instant diversification in a single U.S. traded security. With $342 million in assets under management, as of August 2017, the iShares MSCI Poland Investable ETF (NYSE: EPOL) is the most popular option for international investors seeking exposure to Poland’s economy.
Other options for investing in Poland include the Market Vectors Poland ETF (NYSE: PLND) or American Depository Receipts ("ADRs"). ADRs provide exposure to individual Polish companies in a security that’s traded on a U.S. stock exchange, but investors should be aware that many of these ADRs are illiquid and could, therefore, entail significantly more risk.
Popular Polish ADRs include:
- KGHM Polska Miedz SA (PINK: KGHPF)
- Bank Pekao SA (PINK: BKPKF)
- Grupa ADV (PINK: GPVSY)
Benefits of Investing in Poland
Investing in Poland may seem attractive given the company’s robust growth rates, but investors should consider the many risks to be carefully considered. Benefits of investing in Poland include:
- Robust Economy - Poland has a robust economy that weathered the European Sovereign Debt Crisis and continues to post strong growth rates. According to economist consensus estimates, the country's economy is expected to grow 3.3% in 2017.
- Improving Fundamentals - Poland’s regulators have been working to liberalize the country’s economy and reform many public sectors. For instance, state employment should be reduced, while an overhaul of the tax code for farmers could also help.
- Alternative to Eurozone - International investors investing in the Eurozone must contend with the common currency's influence over equity and bond performance. However, Poland's independent currency has helped it weather crises and succeed.
Risks of Investing in Poland
- Reliance on Germany - Poland’s economy is largely dependent on Germany, which accounts for approximately 26% of its exports and 27% of its imports. Any downturn in Germany’s economy could have a negative impact on its economy.
- Early Stage Legal Framework - Poland’s corporate legal framework remains immature, which has caused uncertainty for many companies operating within its borders. The country ranks near the bottom of the OECD countries in this regard.
- Political Risk - Poland's politics have become increasingly unstable after the Law and Justice party came to power in 2015. After taking control of the constitutional court and public broadcasters, the party has many in the European Union worried.
Key Takeaway Points
- Poland’s high-income economy is the sixth largest in the European Union and historically one of the fastest growing and most robust.
- The easiest way to invest in Poland is using the iShares MSCI Poland Investable ETF (NYSE: EPOL), although there are some other ETFs and ADRs.
- There are many benefits and risks of investing in Poland that investors should carefully consider before buying or selling these securities.
- The emerging political crisis could become a cause for concern moving into the second half of 2017 and into 2018, particularly as the European Union looks for ways to respond.