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Polish investors prepare for phantom interest rate cuts

INVESTINGPolish investors prepare for phantom interest rate cuts
  • According to the Glapiński, the chairman of the National Bank of Poland, chances for interest rate cuts in Poland are slim. In the US, the cuts are expected to occur in the summer
  • About 74% of Polish individual investors have balanced or plan to balance their portfolios this year in anticipation of expected interest rate cuts (compared to 51% worldwide)
  • Nearly 31% of Polish individual investors plan to realize gains or limit future investments in seven large technology companies (compared to 27% worldwide).
  • The most common asset changes would involve increasing stock allocation and limiting cash holdings

About ¾ of Polish individual investors (74%) have balanced or plan to balance their portfolios this year in anticipation of anticipated interest rate cuts. This is a higher percentage compared to 51% of global investors adjusting their strategy in light of changing economic conditions – data from the latest _Individual Investor Pulse_ study conducted by investment platform eToro suggests.

Younger investors lead the way in this respect: 81% of Polish investors aged 18-34 stated that they have already made or will make changes within their portfolio before the interest rate cuts, compared to only 60% of those above 55 years old.

Among those planning to balance their portfolios, the most common change in asset allocation will be an increase in stock investments (43% in Poland and 48% worldwide), followed by holding less cash (39% in Poland and 36% worldwide).

Regarding more specific preferences, 31% of Polish investors express a desire to switch to high-income dividend stocks, and 25% will allocate more money to low-capitalization stocks, i.e., so-called. _small-caps_ (the smallest 15% of stocks on the market). Almost ¼ (24%) will allocate less money to “large tech companies’ stocks.”

Commenting on the data, eToro market analyst, Paweł Majtkowski, says: Despite the chairman Glapiński’s announcement that there will be no rate cuts in our country this year, Polish investors are preparing their portfolios for such a possibility. In addition, investors surveyed by eToro are much more eager to shuffle their portfolios than investors from other countries. In the context of no cuts, these are movements that can be described as “phantom”. However, I believe in the rationality of most investors, who in the context of ever-lower inflation, which fell to 2.8% in February, probably think that the Monetary Policy Council – despite contrary announcements – will have to make rate cuts. Investors, after the recent rate cut in Switzerland, are also waiting for cuts in the US and the euro zone.

According to a survey conducted among 10,000 individual investors in 13 countries, more than one in four retail investors in Poland (31%) plan to reduce investments in so-called “Magnificent Seven” major tech companies in 2024, thus slightly outpacing the global trend, with 27% of investors worldwide declaring the same. About 11% of surveyed investors in Poland stated that they plan to sell some of their shares in the “Magnificent Seven” (which includes Amazon, Apple, Microsoft, Meta, Tesla, Nvidia, and Alphabet) and reduce overall allocation this year. About 1 in 5 of them (20%) plans to invest less in these market-dominating stocks. Nevertheless, 34% of investors plan to invest more in the mentioned companies this year than last (compared to 23% worldwide).

The findings of eToro’s _Individual Investor Pulse_ are the aftermath of booming 14 months for these seven companies. Their combined stock price increased by 90% from January 2023. The results also come ahead of several anticipated interest rate cuts in 2024, designed to support a revival in other, more cyclical sectors of the stock market.

Majtkowski adds: Rate cuts are of great importance to those investing in the largest tech companies. The FED is likely to make cuts in June or July, supporting the American economy and ensuring profit growth and stock market valuations. This will trigger a market rotation from the US and large tech firms towards more economically sensitive and cheaper sectors such as real estate, small-caps, Europe, and emerging markets.

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