My first visit to Poland was in 1991, just as the country was emerging from its Communist era. In those days, Warsaw was a dreary city with empty store windows and shops with nothing much to sell. Located in the heart of the city, its tallest building was (and still is) the 231-meter tall “Palace of Culture and Science in the name of Joseph Stalin,” a gift from the Soviet Union (Stalin’s name was later removed). Many say the striking building—patterned after similar buildings in Moscow with gothic towers topped with elaborately decorated spires and huge statues—resembles a wedding cake. Warsaw today is a lively, modern city with many skyscrapers dotting the skyline and many amenities for residents and visitors, including a number of familiar hotel chains, coffee shops, restaurants and retail stores. Poland has been one of Europe’s fastest-growing economies in recent years; gross domestic product (GDP) growth was 3.6% in 2015 and is expected to rise a similar amount in 2016.1 Poland’s labor market has been improving and wages have been rising, spurring household spending. The unemployment rate has fallen to lows not seen since 2008, and the government has introduced subsidies for families with children, which could offer more impetus to consumer spending. The emphasis on childcare and education is evident everywhere. In one shopping mall I visited during my recent travels to Poland, I noticed there was an educational/play area for children on each floor; one had giant puzzle pieces that children could figure out how to fit together, while another had a display of prehistoric life with models of dinosaurs the children could play with. While the global markets reflected shock after the people of the United Kingdom voted to leave the European Union (EU) in June, I think there could be a silver lining for Poland and other emerging markets in Europe from the Brexit decision. New trade barriers could cause some companies based in the United Kingdom—particularly in the area of manufacturing—to move to countries which are still part of the EU and may offer more favorable agreements and lower-cost labor, such as Poland, Hungary and the Czech Republic. For Polish people living and working in the United Kingdom, the future is a bit uncertain amid anti-immigration rhetoric from those supporting the United Kingdom’s “Leave” campaign. It has been estimated that these workers send roughly US$1 billion (€0.9 billion) back to Poland each year.2 The Rise of Polish Nationalism A potential Brexit outcome that worries me generally speaking is a possible retrenchment in global trade and reform efforts worldwide. Poland’s political environment has become clouded with the rise of the ruling nationalist Law and Justice Party headed by Jaroslaw Kaczynski. Kaczynski is the twin brother of Poland’s previous president, who died in 2010 in a plane crash when landing in Smolensk, Russia. Poland’s people are very proud and protective of their independence and identity, and nationalism has intensified under the Law and Justice Party’s rule. This rise in nationalism is not unique to Poland—the Brexit outcome being a very visible sign of its spread. A rise in nationalistic sentiment can come with a troublesome retrenchment in global trade, and an isolationist stance on the part of politicians can result in avoidance of reforms that bring more growth-oriented policies and privatization efforts. This is of concern to us. A Polish newspaper poll I read found 55% of respondents believed Kaczynski actually ran the country, even though he doesn’t hold an official government office. He is depicted as promoting skepticism and deep mistrust of Poland’s neighbors and former occupiers. The new government has also been accused of taking control of public media, the intelligence services and its highest court. Kaczynski‘s strident nationalism could stem from the history that shaped his youth. At the end of World War II, 85% of the buildings in Warsaw had been destroyed, and Kaczynski grew up learning about the horrors of Moscow’s suppression and imposition of communism. He and his brother worked with Lech Walesa, the Solidarity trade union chief who helped bring down the Communist party in Poland. The death of his twin brother still seems to weigh heavily on Kaczynski, as he reportedly visits his brother’s grave every Saturday as well as at other times to mark key events. Evidence of Poland’s increasing nationalistic stance can be found in the government’s suspension of privatization efforts involving companies in the banking, insurance and energy sectors considered to be strategically important. We would argue privatization efforts had been a key component to the Polish economy’s previous success. The government also revised public procurement rules to favor local companies, something that would likely concern other EU-member countries. In an effort to protect Poland’s important coal mining sector, the government also loosened the energy policy regarding carbon emission levels. Poland’s new government has proposed measures to bolster government finances by introducing a new tax on bank assets as well as a loan conversion program for Swiss-franc-denominated loans that will force banks to convert these loans into Polish zloty. With more than 500,000 Polish households estimated to be holding such loans, the conversion program, together with the new bank levy, is likely to be costly for the banking industry. Years ago, many banks offered clients mortgages in Swiss francs, which were attractive to home buyers because of the very low interest rates. At that time, we thought this was a mistake and warned that such a practice for clients whose earnings were only in Polish zloty would be dangerous if the exchange rate changed. Sure enough, the zloty devalued against the Swiss franc and many homeowners were in trouble. Unable to make payments, many people lost their homes. It thus became popular for the government to favor the mortgage-holding public and hit the banks with measures to take the risk. Additionally, Poland unveiled a sweeping pension-reform plan aimed at dismantling the privately owned pension fund system and transferring the bulk of assets to individual retirement accounts, a portion of which will be managed by a state entity. The European Commission put...
Investment Adventures in Emerging Markets - Notes from Mark Mobius
Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."
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