Polish stocks had a very positive start of the year. The “Trump Rally” in the US that started from mid-November had a positive effect on stocks around the world, including Poland and that effect seems to continue in January 2017. In addition, at the end of the last week there were some positive expectations from the Polish government for GDP growth in 2017.
We don’t believe in the Trump Rally. We think this US president introduces a big uncertainty for the market and investors usually don’t like uncertainty. So we don’t really understand why the stock markets have moved up so much in the last 2 months.
So we are avoiding stocks that would be vulnerable in case of the Polish economic growth being weaker than expected by the government – banks, insurers, retailers and generally companies with exposure to the local Polish market. We have reduced the weight of KGHM – it is an export company but it is vulnerable to a reversal in the “Trump Rally”, which we think will come sooner or later.
We continue to like export oriented and high value added companies with good growth potential. Our preferred examples are:
Selvita – this is basically the essence or combination of everything we like. A polish company, selling abroad very high value-added services and that has a great growth potential. The market liked the news last year that the US administration allowed them to proceed with trials their own cancer treatment substance. Any negative results in these trials would be a risk. But we believe the potential rewards are worth taking it.
Medicalgorithmics – that one too had some success in their growth strategy in the US that was taken positively by the markets. We think the market for diagnosing hearth arrhythmia in the US is huge and MDG has a good product offering that should allow it to capture a meaningful part of it. So, again we have a company that is already profitable at the current size of the business and that has a huge growth potential.
LiveChat – they continue to grow the number of users of their web-chat software. In addition they are already quite profitable and able to maintain the high profit margins. We like how this company is managed, so we still keep this stock in our portfolios, even if the price has increased about 50% in the last year.