When Poland’s stocks debut in the FTSE Russell developed-nation benchmark on Monday, a herd of passive funds will have already recalibrated their portfolios to match their weighting. Active managers may need some persuading.
Executives from Poland’s crop of FTSE graduates are preparing to school a new class of global equity investors in the country’s stormy politics and economics. Senior officials at Bank Pekao SA, the nation’s second-largest bank, and AmRest Holdings SE, which manages the Starbucks, PizzaHut and KFC brands in continental Europe, are ready to make Poland’s case.
“Reclassification creates enormous opportunities to broaden the investor base,” Peter Kaineder, the chief strategy officer at AmRest and a former London-based investment banker, said in an interview. “The main thing is for local companies to give new investors a solid education on specific features of the Polish economy and politics.”
After its creation in 1991, the Warsaw Stock Exchange amassed the biggest pool of listed companies in eastern Europe as strong demand from local pension and mutual funds underpinned a steady procession of stock listings. Now Poland’s FTSE promotion creates a new set of growing pains as trading widens to include global asset managers and brokerages who may know little about the country beyond the headlines on government sniping with the European Union.
Storm Clouds
The row with Brussels over a perceived erosion of judicial independence has darkened the investment case for a country with one of the fastest-growing economies in Europe. The market has also been shaken in the past three years by restrictions on pension funds, a more intrusive state role in the power industry, and the nation’s biggest corporate default.
Polish stocks will be minnows in the FTSE Developed All Cap Index, with an overall weighting of 0.154 percent, compared with their previous 1.33 percent share in FTSE’s emerging-market group. At the same time, MSCI Inc. — the biggest index provider — still classifies Poland as a developing-market, meaning companies can now expect interest from both types of money manager.
“During our recent meetings with investors, we hosted two people from a single global asset-management company,” said Kaineder, who is about to embark on an international tour of investor meetings. “One of them was responsible for emerging-market strategies, and the other for pan-European or developed funds.”
Bank Focus
For Pekao, the FTSE upgrade and simultaneous inclusion in Deutsche Boerse AG’s Stoxx benchmarks could put it on the radar of global funds investing primarily in financial companies, according to the lender’s Chief Executive Officer Michal Krupinski. The bank is targeting new shareholders in Asia and the Middle East, while maintaining relations with fund managers from Europe and the U.S.
“We hope that our high-dividend yield, combined with the strategy of quickly increasing our return-on-equity ratio, creates a unique investment story in developed markets,’’ Krupinski said. “Our business model makes us a barometer for economic activity in Poland, therefore we focus on explaining the fundamentals of the Polish economy during our investor meetings.’’
Both Pekao and AmRest are betting that access to a more diversified group of investors will also help reduce their cost of funding in the future.
“Regardless of our size in the indexes we think our fast pace of expansion and the increased interest in Poland after its upgrade is a perfect story for investors,” Kaineder said.
Source: bloomberg.com