A change in status

Poland has been upgraded as an investment market – at least in the opinion of a leading global index provider. We cast a quick eye over some of the media coverage, both domestic and international, of this significant event in the country’s economic development.

FTSE Russell’s recent announcement that Poland has been reclassified from ‘Advanced Emerging’ to ‘Developed’ market status made a big impact in both the Polish and the international financial media. The country is the first to be thus promoted for almost 10 years – since South Korea in 2009, a year after Israel in 2008 – and the first ever in the CEE region. The promotion was broadly recognised as a major achievement by a country which, less than 30 years ago, was a total economic basket case. Poland leaves the company of countries such as Turkey and the Czech Republic to join the 25 most advanced economies in the world, placing it comfortably within the top 15% of global markets. Although journalists and commentators welcomed the upgrade – while pointing out that it was not an overnight decision, having been announced at the end of 2017 – many also flagged the potential pitfalls that the move entails for Poland.

Katie Martin of the Financial Times called it a ‘milestone’ and quoted Marek Dietl, President of the Warsaw Stock Exchange, as saying: “The development…represents a fundamental change in the perception of Poland among global investors. Poland’s reclassification will spark the interest of new investors in Polish issuers and open enormous opportunities for the entire capital market. I do believe that in the long term it will attract bigger capital inflows.” The FT noted that, while Stoxx – part of the Deutsche Boerse Group – also upgraded Poland, MSCI kept it in the emerging-market category, thereby “helping it to straddle two investor bases.”

Smaller fish, larger pond

After being big fish in a less competitive pond, Konrad Krasuski of Bloomberg pointed out that Poland’s stocks will now be “minnows” in the FTSE Developed All Cap Index, with a projected weighting of 0.154% compared to the previous share of 1.33 in the emerging market group. Krasuski highlighted the different approach of the ‘passive’ funds, which automatically re-calibrate once a market is reclassified, to that of the ‘active’ funds, which – he stated – “may need some persuading.” He spoke to two senior figures from companies whose stocks have been affected, and who will be at the forefront of those making the case for Poland. Peter Kaineder, the Chief Strategy Officer at AmRest, said that reclassification creates enormous opportunities to broaden the investor base, and that “the main thing is for local companies to give new investors a solid education on specific features of the Polish economy and politics.” Also cited in Krasuski’s article was Bank Pekao’s Chief Executive Officer Michał Krupiński, who said the bank was looking to diversify its shareholder base to include investors from Asia and the Middle East to complement its existing European and US fund managers. Krupińśki, reported Krasuski, felt that Pekao could offer funds something different to that which is already available: “We hope that our high-dividend yield, combined with the strategy of quickly increasing our return-on-equity ratio, creates a unique investment story in developed markets,’’ Krupinski said. Like Kaineder, he also emphasised the educational role companies such as his now need to play to investors who may be less familiar with the country: “Our business model makes us a barometer for economic activity in Poland, therefore we focus on explaining the fundamentals of the Polish economy during our investor meetings.’’

The same field of play as Apple

Polish financial news website bankier.pl, while acknowledging the upgrade as being “a huge success”’ and “historic”, concentrated its analysis on the potential pitfalls. Whether the tiny share of Polish companies in the index will increase, the article said, depends on their condition and behaviour in relation to that of the companies from the other 24 countries in the Advanced group. “Here, for the time being, we are pallid – in 2018, the indexes of the largest companies in all developed countries, according to FTSE , performed better than WIG20. So now we are on the defensive and not on the offensive.” (Ed. The WIG20 is a capitalisationweighted stock market index of the 20 largest companies on the Warsaw Stock Exchange). Daily business newspaper Puls Biznesu echoed bankier.pl in emphasising the very small proportion of the index that the largest listed Polish companies represent, highlighting that the likes of PKO BP, KGHM, LPP and PGE are now playing in the same league as titans such as Apple, Amazon, JP Morgan and Exxon. Gulp.

A shared achievement

In perspective, the upgrade would have been dismissed as a pipe dream no more than 30 years ago, when the present site of the Warsaw Stock Exchange was occupied by the Central Committee of the Polish United Workers Party. Even wPolityce.pl, which usually praises the government to the detriment of all other political parties, acknowledged that the achievement was a combination and culmination of the policies and good sense of a succession of postcommunist stewards of the economy by quoting Dietl: “Usually, the markets are working (for such a promotion) for about 50 years – the last two reclassifications of Israel and South Korea – and it took us 27 years. (…) The capital market has undergone a large transformation, which is due to many heads of stock exchange, but also to the Commission of Financial Supervision, NBP, finance ministers. This is an (effect) of a consensus, which clearly cuts across political divisions, to make it work and today we can observe the effects.” In today’s political climate, words such as these are rare, but welcome.

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Written by: Richard Stephens