Poland wins upgrade from EM status by FTSE Russell

(source) Poland has been upgraded to “developed market” status in indices run by FTSE Russell, becoming the first country in the world to be promoted in almost a decade.

The move is the latest recognition of the speed and scale of the development of Poland’s capital markets and overall economy, which has more than doubled in size since the country joined the EU in 2004, and is on the second-longest growth streak in the OECD, having not suffered a recession since the early 1990s.

Russell’s move to rank Poland alongside the US, UK and Germany has been in the works for several months and involves shifting 37 companies including PKO Bank and Bank Pekao into the developed-market basket.

Poland was also upgraded by Stoxx, part of the Deutsche Boerse Group, last week. Helping it to straddle two investor bases, though, it remains in the emerging-market category for MSCI.

“The development …represents a fundamental change in the perception of Poland among global investors,” said Marek Dietl, chief executive of the Warsaw Stock Exchange. “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.”

Poland’s WIG 20 Index was up 0.7 per cent at 2,273.69 in early afternoon trading.

Poland is the first central European economy to be upgraded by FTSE Russell. However, in a reminder of its fractious politics — which worries some investors — its upgrade coincided with a move by the European Commission to take Warsaw to the European Court of Justice over a controversial judicial reform that officials in Brussels say undermines the rule of law.

“One surprise is the timing,” said Ed Cole, a portfolio manager at Man Group. “Poland is institutionally a strong country, but it has been sliding back off that trajectory for some years and in some ways is going backwards.” Still, the upgrade is a validation of an economy that has had a “phenomenal run” in recent years, he added.

Piotr Matys, an emerging-markets analyst at Rabobank in London, agreed that the “official confirmation” of Poland’s economic development was a “positive signal” that might support inflows over the long term. However, he said this could not cancel out concerns among international investors over the rule of law and relations with the EU, from which Poland receives billions of euros in funding each year.

Mr Matys also stressed that Poland’s increasingly consumption-led economy could be storing up stresses without greater investment in the private sector.

Although the upgrade should be beneficial for Poland in the long run, in recent days some Polish stocks have seen outflows, due to the fact that they will have a lower weighting in the developed markets indices than they did in emerging markets ones.

However, Pawel Rzezniczak, head of investor relations at Pekao, said that process had peaked on Friday, and that, overall, the reclassification should provide Polish groups with access to a “broader universe of investors”.

“From now, a lot of Polish corporates will start to engage more actively with those funds that deal with developed markets,” he said.

“In the medium term, being classified as a developed market should help Polish companies to reduce their cost of capital. Perceptions are built over a long period of time, but being classified as a developed market helps companies attract a lower equity risk premium which is important for valuations and cost of capital.”