Profiting From The Polish Resurgence

By Aaron Levitt | October 19, 2009 AAA

International investing has regained its mojo, as investors begin to shift their attentions overseas in order to find growth potential. Emerging markets are once again the "it" investment. More established emerging nations, such as Brazil and India, get most investor attention, but there are other choices in the world that could garner emerging investment dollars. Poland may offer investors a chance gain in profit as well as receive the benefit of low relative correlation to domestic assets.
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Betting on the Zloty
Poland's economy, which is not based entirely on exports like some of its European Union peers, has done quite well during the current global crisis and has eluded recession. The country's gross domestic product (GDP) rose 1.1% in the second quarter from the same period a year ago. This positive result was well above consensus analyst expectations of 0.5% growth. Analysts now expect Poland's economic growth to be between 1% and 1.5% overall in 2009, well ahead of the EU. average. As its colleagues in Central and Eastern Europe are facing a very rough year, Poland is thriving on waves of foreign investment. Both Procter & Gamble (NYSE: PG) and ABB Limited (NYSE: ABB) have several manufacturing plants in the nation, and in January, computer hardware leader Dell (NYSE: DELL) opened a 400,000 square foot plant that will employ around 3,000 people. (Learn more about the GDP and other economic indicators in our Economic Indicators Tutorial.)

Light Debt
Poland has also benefited from a boom in conservative financial management. Compared to Hungary, Latvia, Serbia and the Ukraine, whose heavy national debt levels have sent them to the International Monetary Fund for help, Poland is a relatively light debtor. Polish banks have allowed struggling businesses to refinance their debt en masse to help avoid bankruptcy. And the nation's central bank has kept interest rates unchanged at 3.5%, noting that an increase in retail sales and a rise in economic indicators have signaled vast improvement in its economic situation.

Ways to Play
While there are several Polish companies trading on U.S exchanges, such as lead spirit distributor Central European Distribution (NASDAQ: CEDC), most do not. Exchange-traded funds (ETFs) offer a great way to gain exposure to the nation. However, there isn't currently a Poland single-country ETF. Investors can gain Poland through a selection of emerging market or frontier ETFs.

The SPDR S&P Emerging Europe (NYSE: GUR) provides an 11% weighting towards Poland. The fund is, however, dominated by Russian companies, specifically energy, at nearly 63% of assets. While not necessarily a bad thing, the heavy weighting towards Russia will damper any positive results in Poland. This also holds true for iShares' recently launched MSCI Emerging Markets Eastern Europe Index Fund (NYSE: ESR). Again the fund is heavy in Russian oil, but has a slightly higher allocation to Poland at 13%.

The better way to add Poland to a portfolio is through the Claymore/BNY Mellon Frontier Markets Fund (NYSE: FRN). Allocations to countries are more even in distribution with Poland clocking in at 16% of assets, with only Chile ahead of it at 28%. In addition to Poland, investors will also gain exposure to Egypt, Luxembourg, and Argentina. Expenses run 0.65% annually.

Bottom Line
While much of Europe is still struggling, Poland is chugging right along. Analysts predict that Poland could be the only nation in the region to post positive growth for the year. Investors with longer-term timelines may want to add Poland to their portfolios to harness some of this growth. Until a Poland-specific fund is created, both FRN and GUR make excellent additions to a Poland-focused portfolio.

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