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Poland: A Better Eastern Europe ETF?

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Poland has managed to remain relatively unaffected by the Euro-zone issues--until recently. It was the only country in the European Union that avoided recession in 2009. The growth came mainly from high government spending on infrastructure, rising consumer demand and soaring foreign investments.

Poland also benefited from having its own currency while being a part of the broader European Union.  Due to its skilled workforce, low wages and location, many European manufacturers found the country an attractive place to manufacture. (Read: 4 Best ETF Strategies for 2013)

However the growth suffered in 2012 due to reduced government spending and declining consumer confidence. The government made significant cuts in spending in order to bring the deficit down to EU’s requirement—below 3% of GDP.  Further, deepening crisis in the Euro-zone affected country’s exports—as about two-thirds of the exports go to Euro-zone.

While the country has successfully reined in its budget deficit, the growth has slowed—to only 1.4% in the third quarter of 2012, down from 2.3% in the second quarter and significantly below 4%+ growth recorded in each quarter of 2011. However the growth is still much better compared with most other countries in the region. (Read:

Unemployment has been creeping up of late and stands at 13.3% currently, affecting consumer confidence and spending. Banking sector has remained well-capitalized and profitable so far but the risks are beginning to appear as most of the banks are foreign owned. (Read:Two Sector ETFs to Buy in 2013)

Per IMF estimates, the economy grew at 2.4% in 2012, down from a solid 4.3% in 2011, and will slow down further to 2.1% in 2013, while inflation will remain under control—down to 2.7% in 2013.

In its attempt to boost the slowing economy, the central bank cut the benchmark interest rate to 4% earlier this month—for the third time in a row. It finally appears that the rate cuts are helping the economy as evident from the recent PMI data. (Read: Q4 ETF Asset Report: Broad Market ETFs Reign)

While approving a new $33.8 billion credit line for Poland, the IMF praised country’s strong economic fundamentals, policy frameworks and credible inflation targeting regime but warned about the challenging growth environment resulting due the headwinds from the rest of Europe.

The country's finance minister said recently that he expected "an unpleasant first half of 2013, and a much better second half of 2013”.

Despite near-term challenges, Poland remains one of the best choices for longer-term investing in Europe.

Investors seeking exposure to Poland have a choice of two ETFs--EPOL and PLND—both currently have Zacks ETF Rank of 2-(Buy). In addition to solid return potential, both these ETFs pay out decent yield, which adds to their appeal.

iShares MSCI Poland Investable Market Index Fund (EPOL - Free Report)

Launched in May 2010, EPOL provides a board exposure to the Poland equity market.  The fund currently holds 45 securities in the portfolio, mostly from the financial sector (41%). The fund is top heavy with top three holdings accounting for almost 34% share of the portfolio.

Market Vectors Poland ETF (PLND - Free Report)

Launched in November 2009, the fund tracks the Market Vectors Poland Index, which consists of 25 companies that are either headquartered in Poland or produce at least 50% of their revenues from the country.  

The fund holds 30 securities in its basket with the top three companies accounting for more than 24% of the holdings. In terms of sector exposure, financials constitute more than 37% of the assets.  





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