After a strong start to the year, with a 30% gain in the first five months, the Polish stock market is hesitating.
The reason for this is the political volatility caused by the election of Karol Nawrocki as president, who comes from a right-wing party that intends to give pro-European Prime Minister Donald Tusk a hard time. So here is Poland in cohabitation, which suggests little progress on the structural reform front.
However, this is not expected to change the country's strong dynamism much. Polish equities remain present in all our portfolios.
Is Poland really European?
Seeing its economic performance, one can wonder if Poland is part of the European Union.
All the lights are green. Over the last decade, Polish growth has exceeded 3% on average. The employment rate is high, at nearly 73%, real wages increased by 9.5% in 2024, and household debt is limited, around 24% of GDP. The latter, therefore, have an overall enviable financial situation, especially since 87% of them own their homes.
Deficits on public spending have been limited over the last decade, even if the explosion of military expenditure in 2024 pushed the public deficit towards 6.6% of GDP. Despite this surge, public debt remained contained mainly, between 50% and 55% of GDP.
Therefore, the country remains in a healthy financial situation with good economic potential due to strong domestic demand. Households clearly have the means to consume, even if a slowdown in wage growth is expected.
Add to this the European funds that should boost growth in 2025 and 2026. The Recovery and Resilience Plan and Repower EU are expected to mean more than €60 billion invested in Poland, of which more than €30 billion is still expected. Under normal conditions, they will be accompanied by a boom in private investment in the country.
Poland also has another advantage: At a time of high uncertainty in international trade, it offers investors a rare proposition in Europe: a profile where (vigorous) growth depends more on domestic demand and investment than on exports. This has made the Polish market successful in recent months.
The importance of European funds
Faced with this most promising picture, one might wonder why investors are worried about the presidential election's outcome. This issue is more a matter of politics than economics.
The reason is simple: a staunch pro-European and former President of the European Council, Prime Minister Donald Tusk has greatly improved relations between Warsaw and Brussels. It has thus managed to release billions of euros in European funds. The latter had been blocked by Brussels, which was worried about authoritarian excesses in the country and, in particular, breaches of the separation of powers.
However, the outgoing president, Andrzej Duda, has blocked a number of measures wanted by Tusk (and the reforms he proposes). The markets were, therefore, waiting for a President who would cooperate more with Warsaw and Brussels.
This would have had the advantage of accelerating the flood of European funds into the Polish economy, a scenario that seemed within reach and gave hope for prosperous years in 2025 and 2026.
But the Poles decided otherwise. By electing Karol Nawrocki, they are prolonging the difficult cohabitation in Warsaw, which could, in the worst case, impact how European funds intended for Poland are disbursed - and then spent.
According to the central bank, the country's economic performance in 2025 will depend heavily on how European funds are spent, as this leads to significant variations in investment.
The good prospects continue
This reduces the visibility of Poland's immediate future and its ability to create wealth.
However, it is necessary to put things into perspective. Poland is in an enviable position in a world of great uncertainty and often significant economic problems because it has good governance, a sound financial situation and an enviable dynamism. Polish economic players also still have a lot of room for manoeuvre.
The expected cut in Polish key rates should also help stimulate the economy, which is expected to grow at just over 3.0% in 2025 and 2026.
In addition, with the help of cultural ties, the country is emerging as a privileged gateway to Ukraine's markets. Despite the war, many Polish companies have set up in the country. They will undoubtedly be well-placed to benefit from the peace dividend once the conflict is over.
A dynamic cheap market
Although relatively small, the Polish stock market is dominated by the financial sector, which accounts for some 52% of MSCI Poland, far ahead of energy (13%). Nevertheless, it is very interesting in our eyes.
Generous in terms of dividends (4.7%), it is not particularly expensive, trading at a price-to-earnings ratio of around 12.4, compared to 16.7 for the MSCI EMU (which covers the entire eurozone) and even 22.5 times earnings for the MSCI World. It is a cheap market that also offers great dynamism, which is expected to last, as well as interesting diversification in these delicate times.
Under such conditions, we continue to invest 5% of our fund portfolios in Polish equities, regardless of the risk profile.
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