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Time to Power up With Poland? (EPOL, PLND)

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Time to Power up With Poland? (EPOL, PLND)

Poland has commenced its co-hosting of the 2012 UEFA EURO Finals along with Ukraine, giving the two emerging Europe economies a chance to showcase themselves in a positive light at a time when the rest of the world has some serious reservations about investing in Europe.

To be sure, Polish equities and ETFs have been swept up in the Euro Zone's debt woes despite the fact that Poland isn't a Euro Zone member. So bad have the recent performances been for the iShares MSCI Poland Investable Market Index Fund (NYSE: EPOL) and the Market Vectors Poland ETF (NYSE: PLND) that both were recently in bear market territory, meaning they had declined more than 20% from their highs.

But amid a sour environment for almost every investment with the Europe label, some see opportunities in Poland. There are some facts to support a bullish long-term view of the Polish economy. It was the only European country that didn't enter a recession in 2009. It's not an export-driven economy and despite the fact that a one point this year Poland's economy was smaller than Apple's (Nasdaq: AAPL) market cap, the country is still projected to have the best 2012 growth rate of the 27 European Union members.

"Back in 2009, Poland was the only country in Europe not to go through a recession, and I think back then, the financial crisis was more U.S.-centric," said Ed Kuczma of the Van Eck emerging markets investment team. Van Eck is the parent company of Market Vectors, which sponsors PLND, the first Poland-specific ETF.

"Now, the concentration is more Europe-centric, and this does have implications for Poland's economy. Its largest trading partner is Germany; and Germany is seen as one of the more resilient economies within Europe. This gives you a little bit of confidence that Poland should be able to ride this storm pretty well. Exports are only 42% of Poland's GDP, and the economy is relatively domestically-focused," Kuczma said on the Van Eck Web site.

Another potential source of strength for the Polish economy going forward is the country's vast shale gas reserves. Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX) and Royal Dutch Shell (NYSE: RDS-A) have all committed to exploring for shale gas in Poland.

"If these resources are realized, then Poland would have enough natural gas to fulfill its energy needs for the next 300 years. Currently, the energy matrix for Poland consists of coal — which it's very dependent on and which is not very environmentally-friendly — and natural gas imports from Russia — which it's very reliant on. There's some political instability between these two countries, and Poland would really love to be more self-sustaining in its energy needs," Kuczma noted.

By some estimates, Poland is believed to have the largest shale gas reserves in all of Europe. To that end, it's worth noting EPOL is 12.5% allocated to energy stocks while PLND offers a weight of 14.7% to the energy space.

Kuczma said Polish inflation has been trending a little higher than the central bank there would like, but the global economic slowdown could suppress Poland's inflation issues, which are still minor. The analyst inflation is a near-term issue for Poland, but over the longer term "it's not going to be much of an issue."

Not to mention, there are some compelling valuations to be had with Polish equities. EPOL currently has a price/earnings ratio of 10.5 while trading at almost 1.5 times the average weighted book value of its components. That makes the ETF cheap based on those metrics than the iShares MSCI Emerging Markets Index Fund (NYSE: EEM), the iShares MSCI Brazil Index Fund (NYSE: EWZ) and the iShares S&P Europe 350 Index Fund (NYSE: IEV), an ETF heavy on developed Europe equities.

For more on Poland ETFs, please click HERE.

Posted-In: Analyst Color Long Ideas News Short Ideas Emerging Market ETFs Commodities Events Global Best of Benzinga


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