Polish bonds and currency
Polish bonds have not had the best of times recently. Yield on the 10-year government bond, which was below the 3% mark in late October 2016 is at the 3.8% mark at present. A rise in inflation and low market liquidity have been chief causes of a rise in Polish government bond yields.
Gerardo Rodriguez, a Portfolio Manager for the Emerging Markets Group at BlackRock, who manages multi-asset portfolios, has persevered through a rise in Polish bonds. As reported by Bloomberg, he “prefers Polish investment-grade sovereign debt to higher-yielding bonds from Brazil and Ukraine.”
A factor which has worked for Polish bonds has been rating agency Fitch reaffirming its A- credit rating on the country amid some fears of a downgrade.
Apart from Polish bonds, Rodriguez has also bet on the Polish zloty. The currency had seen a large selloff in late November, witnessing 4.5 to 1 euro levels in early December. The zloty has recovered since then, reflecting the strength in the country’s economic growth which posted a 1.7% quarter-on-quarter rise in Q4 2016, sharply up from 0.4% a quarter ago and the fastest quarterly pace since 2007. The zloty is at 4.3 per euro levels at present.
Polish stocks
Improving domestic growth has also led to a rise in Polish stocks (EPOL), which touched an 18-month high on February 22. Rodriguez has a marginally overweight position on Polish stocks (PLND).
Equity markets in Poland has had a fantastic start to 2017. The MSCI Poland Index had gained 10.5% for January 2017, placing it as the second best emerging market for the month behind Brazil. Until February 22, the Index has gained 18.8%, far outperforming the MSCI Emerging Markets Europe Index, which has gained 3.5% so far this year.
The US administration has had quite a bit to do with the rise in Polish stocks. Hopes of stimulus measures from the US has provided a boost to local stocks. According to Rodriguez, “We like Poland in the context of potential for the interest rates in the U.S. to go up.”
He went on to state that “the risk in Poland has been going up with all these geopolitics and the increase in regional tensions. Still, when you look at Polish assets, they continue to be relatively well-behaved.”
