Emerging market equities and related exchange traded funds have been among the most unloved areas of the market after the recent bout of volatility. However, there are areas that have been less bad than the broader emerging markets universe and those areas could become leaders if a legitimate emerging markets rebound comes to pass.
Investors should look at the emerging market equities as a more cyclical asset. Currently, after years of outperformance in the developed markets, the emerging markets are beginning to show a lower premium to more developed countries. [Look to Emerging Market ETFs in the Second Half]
Since July 2014, more than $1 trillion has been pulled from emerging markets stocks and funds, including mutual funds and ETFs. However, there might be opportunity in Eastern Europe, specificially with Poland ETFs, such as the iShares MSCI Poland Capped ETF (NYSEArca: EPOL) and the Market Vectors Poland ETF (NYSEArca: PLND).
PLND and EPOL, the two Poland ETFs, suffered earlier this year when the Swiss National Bank surprisingly scrapped the franc’s peg to the euro. The Polish economy is that the country is home to $35 billion worth of franc-denominated mortgages, an ominous trait when the franc is strong. [Franc’s Rise Punishes Poland ETFs]
Franc-denominated mortgages in Poland are a relic of pre-global financial crisis days. After the zloty, Poland’s currency, tumbled during the crisis, Polish banks ceased offering mortgages denominated in francs. However, franc-denominated mortgages issued prior to 2008 remain in use, underscoring the vulnerability of Polish banks and borrowers to ongoing strength in the Swiss currency. [Poland ETFs Endure]
With those issues perhaps fully priced into Polish stocks, investors could be getting close to the right time to consider EPOL and PLND.
“Unlike a large portion of the emerging markets space, Poland’s fundamentals look relatively strong with few overbearing structural issues. Poland’s growth remains around a 3-handle, largely driven by domestic demand which also provided support during the global financial crisis. Resilient domestic demand helps shelter Poland from external shocks. Growth will likely benefit indirectly from European QE, and with the benchmark rate at 1.5%, the Polish central bank still has some ammunition to ease policy,” according to a Seeking Alpha post.
iShares MSCI Poland Capped ETF
