Poland since 2008: strong economy, weak stock market

2015-05-12 11:21:09

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During the 2008-2013 period Poland experienced a cumulative GDP growth of 20,1% (comparing to the EU average of 0,9%) and the last year growth achieved 3,4%. However, the stock market did not reflect the good conditions of the Polish economy.


Since the mid-March the Polish stock market has been bullish but since the last quarter of 2010 the iShares MSCI Poland Investable ETF (EPOL) has experienced a relative decrease of almost 70% below S&P, considering beta value. For a year the relative fall is still more than 20% below S&P.

The reform of the Polish public pension system is considered to be the main reason of the stock market’s poor performance. The part of the pension premiums used to be invested on the Polish stock exchange. In 2011 this part was significantly decreased in favor of the PAYG (pay as you go) piece of the system. During the next years further reforms were discussed and since 2014 the capital-funded piece of the pension system has been voluntary. Otherwise, the entire premium goes to the PAYG system. The majority of Poles did not decide to stay in the capital-funded part. These reforms resulted in less and less capital inflows to the Polish stock exchange.

The second reason for the weak stock market is its structure, especially the structure of the most popular large-cap index WIG20. The index contains companies which belong, almost exclusively, to only four sectors: financials, energy, fuels and mining. The three last sectors do not reflect the economic growth acceleration. Furthermore, last year was extremely bearish for the commodity sector. Financial sector performance has also been quite poor since the financial crisis.

A lot of investors perceive Poland as a part of their Eastern Europe portfolios, together with several other countries, whose economies have not done very well in the previous years: Hungary, Czech Republic, Russia. The breakdown on the Russian stock exchange had a very negative impact on the Polish equity market. Moreover, the situation in Ukraine increases the perceived investment risk of the bordering countries, although Poland is a member of the NATO and the EU.

Because of all the above reasons the Polish stock market has not reflected the good conditions of the economy. Since the mid-March it has been bullish but WIG20 is still lower than in the mid-2011 (not to mention 2007), despite the stable and continuous economic growth in Poland.




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