Poland has marked a successful turnaround in the 10 years since the

Velvet Revolution

.

It has joined

NATO

. It entertains prospects of

European Union

membership in 2003. And, in the ultimate embrace of capitalism, a Polish company has listed on a U.S. stock exchange.

Last Thursday,

Netia Holdings

(NTIA:Nasdaq ADR), Poland's second-largest telecommunications company, raised more than $120 million by selling 5.5 million ADRs on the

Nasdaq

. Traders' warm reception of the company -- shares were little changed at about 22, even though they listed on a day the market fell 2.4% -- stands in contrast to investors' general embrace of the country.

"American investors haven't fully realized, first Poland's economic turnaround and also Poland's stability," says Deputy Foreign Minister Radoslaw Sikorski, who accompanied Netia executives to a New York celebration after the IPO. "It's a pity because they are missing out on some great opportunities."

Foreign indifference to Poland, where the key stock index is up 12.1% over the last three months, is surprising. The country's economy has been growing steadily since 1992 and is expected to expand at a respectable 4% in 1999, according to a joint report released last week by the

Finance Ministry

,

Central Bank

and two Polish research institutes. That makes it appealing not only as a market converging with developed Europe, but also in comparison to its neighbors like the chic but economically shabby Czech Republic, which reported negative GDP growth last year.

And Polish authorities are successfully fighting inflation.

Moody's Investors Service

estimates the inflation rate to be 7.5% this year, down from 11% in 1998. Coupled with its consistent reduction of public expenditures, cynics might hold up Poland as an example for some of the EU's more troubled economies.

Christopher Smart, who manages the

Pioneer Emerging Europe Fund

, says Poland may have suffered unjustly because of its geographical proximity to Russia, which was battered in the currency crisis that swept the globe. He also says the market's diminutive size keeps some foreigners away, even though the

Warsaw Stock Exchange

has the reputation of being one of the region's best regulated.

"One reason Poland suffers is because it is a relatively small market that is not as liquid as many markets in Western Europe," Smart says. "The kinds of companies there are available to invest in are not the high-tech growth stories that draw a lot of U.S. investor interest."

The low level of turnover makes stock prices more volatile. A mere $27 billion in stocks changes hands every year on the Warsaw exchange. By contrast, $40 billion changes hands every day on the Nasdaq.

Increased privatization of national industries, as well as privatization of pension funds that will shunt more money toward the stock market, may help to change that situation.

"In a few years, we will privatize more than in some Western countries," says Sikorski, an unabashed fan of

Ronald Reagan

. "Poland has a kind of American-style freshness and elan in introducing capitalism and enjoying capitalism."

The words are being followed by deeds. Companies are being privatized, and on July 4, a committee led by Sikorski was formed to rename a square that commemorates the 1952 communist constitution to honor the former U.S. president and Sikorski's hero. The move will give the world an indication of just how committed Poland is to remaking itself.

Despite the reassuringly free market-driven words of Poland's leaders, few mutual funds focus specifically on Central Europe, let alone on Poland.

That, says Pioneer's Smart, is likely to change, "Poland is getting ready for a very good run in

the second half of the year because of renewed growth in Western Europe

Poland's biggest trading partner. It's still a pretty exotic funding class, but there is tremendous opportunity for growth and the risks are much less than some other regions."

The philosophy has paid off for Smart. His Ireland-based fund was up 8.02% in the first six months of the year. (Because it is an offshore fund, it is not available to U.S. investors.)

With more Polish companies likely to follow Netia's lead, investors may do themselves -- and their pocketbooks -- well by investing in Central Europe's most consistent converging economy.