During the pandemic, when access to loans is even more difficult, promising businesses have a better chance at a stock exchange where investors take decisions based on a company’s potential and business model rather than its past as banks do
By Marek Dietl
Economies and capital markets everywhere in the world start a new decade of the 21st century in a climate of uncertainty caused by the coronavirus pandemic. However controversial this may sound, this uncertainty – fuelled by unknowns like the virus mutations – proved beneficial for stock markets. It was the uncertainty factor that triggered movement on capital markets on a long-unseen level, with the Warsaw Stock Exchange (GPW) I run being a prime example. In 2020, GPW was the second stock exchange in Europe in terms of growth of liquidity.
The year 2021 will mark a jubilee for the Warsaw Stock Exchange. On April 16, 2021, we will celebrate the 30th anniversary of the inaugural session of the stock exchange, reactivated after a decades-long hiatus, caused first by war and then by communist captivity.
Numbers show best the big leap the Warsaw Stock Exchange has made over this period. It took 28 years for GPW to rise from the category of marginal market to that of developed markets. By comparison, for South Korea, this process took 55 years. GPW is a clear leader in the region with regard to capitalisation, which is almost €12 billion higher than the Vienna Stock Exchange and far ahead of other stock markets in Central and Eastern Europe (CEE). GPW is also among the leaders regarding a percentage value of the capital market in relation to GDP (25.4 percent). The capitalization of companies listed on GPW amounts to more than €235 billion. However, three decades ago, GPW closed 1991 with nine listed companies with total capitalisation of €0.04 billion only, at today’s prices.
Today, the strength of Poland and the entire CEE region is owed, to a large extent, to the number of fast-growing technological companies, which, as they develop, need capital. According to estimates of the Polish Development Fund (Polski Fundusz Rozwoju) and Dealroom co., start-ups from CEE region reported an almost fivefold growth in terms of Venture Capital investments in 2015-2019, namely US$1.8 billion. This is confirmation that large investors recognise the enormous technological and economic potential of the CEE region, and expect big returns in the near future.
It is worth noting that banks continue to finance 90 per cent of economy in our region. However, they choose predominantly companies from the so-called traditional sectors, while EU funds are earmarked, first of all, for the development of infrastructure. This limits access to funds for new companies which are increasingly looking to the capital market. This concerns the so-called Covid-winners in particular, such as game producers as well as the medical and technological sectors. During the pandemic, when access to loans is even more difficult, promising businesses have a better chance raising funds in the stock exchange, at which investors take decisions based on a company’s potential and business model rather than its past, as banks tend to do.
Central and Eastern Europe has a potential to grow much faster than the entire EU but a big fragmentation of markets continues to be the main challenge. They are too small to compete individually against the markets in Western Europe. Integration is needed to attract first-rate institutional investors to our region. I place much hope in the EU’s Capital Markets Union which has supported recovery of capital markets since 2014. Another big opportunity is the Three Seas Initiative that was established in 2015 and the goal of which is to strengthen cooperation among countries from the areas between the Adriatic, Baltic, and Black seas in the fields of digitalisation, energy, and transport.
I believe that GPW as one of the twenty-five best developed markets in the world should play the main role in promoting and supporting development of our region. For years, we have expanded cooperation among the stock exchanges of the Three Seas countries by organizing and engaging in the events that are crucial to strengthening its attractiveness to investors. In late 2019, we launched the CEEplus index based on the value of the portfolio of the largest and most liquid companies listed on the respective stock markets from the Visegrad Group as well as Croatia, Romania, and Slovenia. Furthermore, in September 2020, we organized the Three Seas Stock Exchanges Conference under the honorary patronage of the President of the Republic of Poland Andrzej Duda.
The growing significance of GPW finds confirmation in the data released by the Federation of European Securities Exchanges (FESE). GPW is ranked second among Europe’s stock markets as regards liquidity growth measured by the value of shares traded on the order book. Also, in terms of liquidity measured by the turnover of portfolios, we have overtaken some of Europe’s stock exchanges. Along with other developed markets like Switzerland, we are also in the lead of European stock exchanges regarding the turnover value.
The reason I am saying all this is because there are many companies in the region that are mature enough to enter the public market – I mean both the so-called unicorns as well as those with a potential to become them in the next few years. GPW is a perfect place for them to gain capital and continue development. WIG20 as the crucial index of the Warsaw Stock Exchange is becoming similar to those reflecting the structure of economies of the United States or South Korea where technology is the focus of interest. As of last October, we are also the world leader in terms of the number of listed companies from the video game production industry as we moved ahead of the Tokyo Stock Exchange. The total capitalization of Poland’s gamedev sector amounts to more than US$10 billion.
The fact that Poland’s capital market has been classified among the group of developed markets attracts the attention of global investors as exemplified best by the debut of Allegro (over €2 billion) – the biggest for more than a decade within CEE and one of the world’s biggest last year. High valuations, the presence of foreign technology funds among investors, and the continued liquidity of trading in shares only confirm that the GPW is a fully developed market.
- Marek Dietl is the CEO of the Warsaw Stock Exchange (GPW)
(This article is published simultaneously in the Polish monthly magazine „Wszystko Co Najważniejsze” in partnership with the Warsaw Stock Exchange)
