Imagine if all countries acted like Poland…

What is perhaps less known is that Poland has also developed a strong and large domestic financial market. Besides a well functioning stock market there are also a large number of local pension funds who are significant players on the market. Given their size and continuous injection of capital, a strong domestic investment group has been created. We have, in many of our discussions with representatives from other countries in Eastern Europe, highlighted Poland as a good example to follow.

And why is Poland so good? Well, one of the most important parts of a strong pension system is its ability to take advantage of growth in the country. There are several examples of pension systems where the portion of domestic stocks is close to zero. This scenario is the worst in Baltic States where local pension funds are completely absent on the local financial markets. Another significant advantage is that this also creates a base for companies to raise capital by making it possible for public offerings. Thus, it is no coincidence that the Baltic States have suffered immensely from the financial crisis – it was way too simple to borrow money combined with dysfunctional stock markets, which is a result of pension funds not buying local assets.

As mentioned, the situation in Poland is quite different. Today, there are 498 companies listed on the Warsaw Stock Exchange. Compare this to 26 in Prague or 46 in Budapest and the picture becomes even clearer. The number of public offerings in Warsaw are impressive:
2007   105
2008     94
2009     39
2010     53 (during the first seven months)

The Polish government is also able, with the help of a functioning stock exchange, to implement a very ambitious privatisation plan. Since the middle of June 2009, more than seven billion USD have been invested on the exchange. The most memorable transactions include, among others, the mining company Bogdanka that received the East Capital Award for Best IPO last year. The plans for the coming year remain ambitioudivs and even include the Warsaw Stock Exchange itself.

The best way to gain exposure to the significant development in Poland is through our special East Capital Bering New Europe Fund which is traded quarterly. The fund will open again for new investments on 30 September.

Peter Elam Håkansson
Written on flight SK 705 (Scandinavian Airlines) between Helsinki and Stockholm