Investing in 2023

While filing my tax return on Thursday and claiming a sizeable refund (the effect of amending the Polski Ład reform in 2H2022 which retroactively decreased the PIT rate in the first bracket from 17% to 12%) I thought how to make the best use of money, other than spending it.

The current year does not seem to be easy for holders of pecuniary assets, since preserving purchasing power of money has become a challenge. Let’s look at the most popular alternatives at hand.

With the current real interest rate of -10% in Poland, bank deposits (whose quotations fell recently) still offer a solid alternative to putting money in a drawer, but even with expected disinflation, a real return in a few months is very likely to be negative anyway.

Poles are generally wary of fancy investments and therefore those who possess sizeable surpluses often turn them into tangible assets, i.e. residential properties. Between October 2021 and October 2022 mortgage instalments rose by around 100% and repayment capacities shrunk, hence the number of new mortgages granted was falling by nearly 70% year-on-year in 3Q2022. Property transaction prices only nudge up these days, but with inflation of over 17% (the January 2023 reading), value-wise they have produced a real negative return of 15% over the recent year. If prices stabilise in nominal terms over the next quarters, in real terms they will begin to be getting cheaper and cheaper. My forecast for this asset class (I dislike the term, since I believe properties should meet people’s housing needs rather than constitute a haven for their money) is not optimistic. With factors driving their prices potentially up and down in the near future, I believe the rent yield and price appreciation might be at the level of bank deposits, with higher risk and lower liquidity.

The equity market reached its low in Poland and on most markets in early October 2022. It seems at that time stock prices already discounted all negative scenarios on the horizon, especially pertaining to problems with energy supply during the winter. I believe stocks might be a good, but if you purchase them on a temporary low. My strategy would be to wait for a correction and get some exposure to equities and if the correction gets deeper, buy more to bring down the average purchase price.

Government bonds seem to be a safe choice credit-wise, since most governments benefit from the inflation, as the real value of their debt shrinks. With the anticipated decrease in interest rates, fixed-coupon bonds might be a good mid-term investment, but mostly in terms of price appreciation, not the interest income. The yields on Polish 10Y gilts were quite volatile in recent weeks. Even in recent days the yield increased from 5.9% to 6.3%, which given the 10Y tenor must have resulted in a substantial loss in value.

For some foreign currencies are an alternative. Here it seems that Polish zloty is already weak against major currencies and little room for depreciation is imaginable. In practice the negative real interest, disturbingly low for a civilised world, might send the Polish currency even lower.

I have no idea about alternative investments, since I do not track them, but definitely must advise you not to jump into a train which has already departed. Chasing missed opportunities is one of major mistakes investors make. Stocks? You should have bought them in October 2022. Polish gilts – too. Inflation-linked bonds – you should have purchased them in 2021 at the latest. As a proud (of my skills) holder of those securities I do not believe they will continue to fetch extraordinarily good returns for more than a few quarters ahead. Or actually with the governor of the central bank who does not fulfil his duty to shield purchasing power of Zloty, those bonds might outperform bank deposits for 2 or 3 years.

Off for late-winter holiday next weekend. A coverage due on 12 March 2023.