Poland set to join developed markets; the real 'big bang' is yet to come for the WSE

Poland is on the cusp of a significant economic milestone as it prepares to be upgraded from emerging to developed market status by S&P Dow Jones Indices next September. This move, while anticipated, marks a prestigious acknowledgment of Poland's economic trajectory and the robust performance of its stock market, which has seen substantial gains. The number of Polish companies included in the STOXX Europe 600 index has also increased, further solidifying its position.

However, the article suggests that this S&P reclassification, while important, may not trigger the dramatic market shifts that some anticipate. Past experience, such as Poland's upgrade in the FTSE Russell indices in 2018, saw limited immediate impact. The true catalyst for a major market transformation, a "big bang," would be an upgrade within the MSCI indices, which are benchmarked by a vast majority of global asset managers and pension funds.

The potential impact of the S&P reclassification on capital flows is expected to be modest, possibly slightly negative on the rebalancing day itself, with active investors likely positioning themselves beforehand. The article draws parallels with Israel's reclassification in 2010, which did not result in significant market upheaval. A key consideration in these classifications is whether a country functions better as a large fish in an emerging market pond or a smaller entity in a developed one.

For Poland to achieve an MSCI upgrade, it must meet specific criteria, including sufficient Gross National Income per capita and a requisite number of large, liquid companies. While Poland appears to meet these, MSCI also scrutinizes market infrastructure, such as securities lending and short selling, and the availability of company reports in English. The ultimate decision rests on the collective assessment of global investors consulted by MSCI, making their evaluation crucial for Poland's potential inclusion on the index provider's watch list.

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Some investors will start positioning themselves in advance for Poland's promotion to developed markets according to S&P DJI. However, the real test may come in the following years.