Three Seas stock exchange leaders call for increased visibility of emerging Europe’s capital markets

Polish President Andrzej Duda has told the leaders of emerging Europe’s major stock exchanges that now is the time to realise the region’s full economic potential, in order to build prosperity.

Mr Duda was speaking at a Three Seas Stock Exchange conference held in Kraków on September 7, which brought together the CEOs of the region’s stock exchanges as well as representatives of public administrations, experts from institutions which promote sustainable development goals, business practitioners, and representatives of the region’s leading financial institutions.

The conference looked at how to boost cooperation among the Visegrád countries (Czechia, Hungary, Poland and Slovakia) as well as Bulgaria, Croatia, Romania, Slovenia and the broader emerging Europe region. It was held as part of the Three Seas Initiative, which aims to promote dialogue and development of infrastructure in the energy, transport, and digital sectors, targeting new investments, economic growth, and energy security.

“The Three Seas Initiative has been one of the most important areas of my work over the last five years,” Mr Duda said. “I remember meeting with the then president of Croatia, Kolinda Grabar-Kitarović, back in 2015, and talking about creating a cooperation format on a European level between the Baltic Sea, the Adriatic Sea and the Black Sea.”

“Back then, it seemed distant, but I was convinced that with our similar histories and difficulties, we are able to understand each other better, better than our colleagues from Western Europe, who never experienced communism, never really felt what it means to have a restriction of freedom of speech, who never really felt what it meant when someone wasn’t allowed to travel, or when you are blackmailed, or followed, or imprisoned.”

This, according to Mr Duda, is what gives emerging Europe an unparalleled potential for cooperation and understanding, where the region as an economic whole is greater than the sum of its parts.

“It has been more than 30 years since our region has been in the free market, that we are free and independent, sovereign states,” continued Mr Duda. “And now we have the biggest opportunity to develop since the 17th century. This might be hard to believe, but it’s true.”

This development should take place not just within the region, but within the entirety of the EU, of which according to the Polish president the Three Seas region is an inherent part.

A panel of capital market CEOs acknowledged that while now could be an unrivaled time to realise the region’s potential, it is also a time of unprecedented challenges.

Marek Dietl, the CEO of the Warsaw Stock Exchange, highlighted the necessity to overcome these challenges as a precursor to unleashing the region’s potential. He explained that at the beginning of the 1990s, the region was projected as an emerging new world that excited investors. “Now the region is no longer shining so strong in people’s minds, it has been obstructed by huge economic growth in Southeast Asia,” he said.

Peter Nicklewicz, and advisor to the Warsaw exchange, added to this list of challenges, citing overbearing regulation from Brussels, the dominance of certain index providers, the cost and development pace of technology, as well as the ongoing economic fallout from the Covid-19 pandemic.

However, in the face of these challenges, Mr Nicklewicz noted that the region is coping well, all things considered. “We are certainly seeing the green shoots of recovery in the CEE region. However, we are entering a VUCA world – a volatile, uncertain, complex and ambitious world.”

For the CEOs of the region’s stock exchanges, solutions to unlocking emerging Europe’s potential in this ‘VUCA’ world can be boiled down to encouraging economic visibility, and regional cooperation.

“We need to promote both local investment and global investment opportunities so that we are able to compete with these emerging economies in Southeast Asia, and in doing so we need to support one another,” Mr Dietl continued. “Political patronage on the international stage, as well as economic diplomacy, is crucial on this path to greater recognition and visibility.”

As an offshoot to promoting cooperation, the panel agreed that the EU needs to loosen regulation, something which could be brought about by further regional cooperation.

“We must do our job at home, to have greater power in Brussels,” said Radu Hanga, chairman of the board of governors at the Bucharest Stock Exchange. “Regulation comes from Brussels, but we must implement it locally.”

In other words, it’s time for emerging Europe to take centre stage at EU level.

“I strongly feel that what we could do is increase our standing in Brussels. Currently, there is a strong participation of the region, we have around one third of MEPs as well as people on the European Commission, yet we need to use this as a lever to become more visible on the map,” said Petr Koblic, CEO of the Prague Stock Exchange.

“I recently attended a strategic discussion about the future of European capital markets, and few from our part of Europe were invited. Even with Brexit, there were still 10 representatives from the UK, and just three from CEE. That is entirely disproportionate,” he added.

The panelists called for strong advocacy of the region, which must eventuate in coordination with politicians. In this respect, Mr Duda’s presence at the conference was an encouraging sign.

However, as Aleš Ipavec, president of the management board of the Ljubljana Stock Exchange said, the creation of a ‘CEE’ brand, to become readily identifiable, and uniform, doesn’t have to wait for politicians.

“If we start somewhere with small margins, this can be immediately visible. Building a brand is not something that would take us five years; we could start yesterday,” he said. “We are not dependent on Brussels, or politicians, this is something that we can do together.”

A main theme of the discussion was establishing this ‘brand’ in order to attract investment and increase competitiveness. Currently, the majority of the region’s money is invested outside the region. Rather, speakers encouraged internal investment to magnify what many external observers see as somewhat irrelevant companies on the global stage.

This can only come with a development of PR, analysis, and strong research to nourish an environment investors feel comfortable with. Moreover, a uniform approach to investment and capital markets needs to take place, easing the mechanisms of business.

“Right now, it is easier for us to invest abroad, in the US for example, than in any of the countries in the region,’ said Mr Dietl. “But this can change.”

Mr Koblic added that this must happen in conjunction with an increased political emphasis on capital markets, thrusting them into the spotlight of finance ministers and cabinet discussions.

Mr Ipavec agreed that cooperating as a broader whole in both the public and private sector is key to being noticed by external investors. “To get on the radar, we have to work together,” he said.

However there are signs of positive things to come. As Mr Dietl pointed out, the region has to compete against scale, yet it is smart and opportunities can be found in niches, such as the growing Polish gaming sector.

“We need to do better when we apply modern technologies, and we can help ourselves to differentiate in this market via some not so obvious solutions such as tokenisation of non-financial instruments, and niches. There is a great pool of talent. The number of STEM alumni in Poland alone is greater than in all of Scandinavia and only 50,000 less than Germany, which has double our population.”

Mr Duda agreed, “Now, our young generation represents a huge opportunity.”

“Success stories can attract more investors, which attracts more success stories,” said Mr Dietl.

Furthermore, as the Polish president highlighted, the region is gaining traction on the international stage for its increasingly recognised potential.

“President Trump, whom I know perfectly well, and who has decades of experience in big business, had a spark in his eye when I told him about the Three Seas Initiative,” Mr Duda continued.

It remains to be seen if Mr Duda’s counterpart will survive the upcoming US presidential election, and how its outcome will affect future economic cooperation between the US and the region.

You can watch the full discussion here.

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