The Warsaw Stock Exchange, the largest capital market in emerging Europe, turns 30 in April. As it looks forward to the future, it is also looking to export its expertise and share its knowledge of building a successful bourse in often trying circumstances.
By any possible metric, 2020 was a challenging year: for people, countries, and businesses alike, and uncertainty remains with regards to just how quickly the economies of emerging Europe will recover.
And yet the year also saw some positive developments — especially in the technology sector.
In Poland, it is the Warsaw Stock Exchange (WSE) that might prove to have been the biggest winner of 2020. For the bourse, that will celebrate its 30th anniversary in April, 2020 was the passing of many important milestones, including the second-largest initial public offering (IPO) in Europe and a record number of listings for gaming companies.
- The Warsaw Stock Exchange’s NewConnect market is booming
- Oversubscribed Allegro IPO a big win for the Warsaw Stock Exchange
- Three Seas stock exchange leaders call for increased visibility of capital markets
The fact that last year was extremely good for the exchange can be seen in its trading volumes, which according to Marek Dietl, the WSE’s CEO, were the highest in the decade since the bourse started recording them.
“In 2020, equity turnover value of the GPW’s main market electronic order book increased by 55.3 per cent year on year to 297 billion zloty (66 billion euros). From an investor’s perspective, it was a great year,” he says.
Record low interest rates
A part of the WSE’s success can be attributed to the central bank of the Republic of Poland (Narodowy Bank Polski, NBP) setting a very low reference interest rate as a means of trying to stimulate the economy and protect it from the Covid-19 fallout.
As Sachin Minocha, assistant director of investment banking at Acuity Knowledge Partners explains, this shift caused many to withdraw assets from savings account and opt for mutual funds instead.
“The value of assets under management (AUM) of Polish mutual funds, old pension funds and employee capital plans saw an increase in 2020. Altogether, this helped increase the total trading volume on the Warsaw Stock Exchange,” he tells Emerging Europe.
This shift is very important for emerging Europe as a region, where the banking sector still dominates private sector funding. It remains to be seen if the success of the WSE and the maturation of the country’s capital market (Poland was upgraded from an emerging to a developed market in 2017 by FTSE Russel) will spill over to other countries.
“The Polish capital market is one of the most developed in our region and the role of the Warsaw Stock Exchange in achieving that was instrumental,” says Pierre Heilbronn, vice president of policy and partnerships at the European Bank for Reconstruction and Development (EBRD).
With the current economic conditions being what they are, it’s likely that the trend toward securitisation will continue in Poland for the foreseeable future, making the capital markets even more attractive to investors.
“Relatively high inflation, with the Polish central bank not looking to increase interest rates, will likely accelerate the shift of savings towards riskier assets and support valuations on the WSE in the coming months,” Mr Minocha explains.
Smaller companies will not be left out of this shift, thanks to WSE’s NewConnect, a booming multilateral trading facility, where SMEs can raise capital and be listed easier and cheaper compared to a traditional IPO.
Favourable economic conditions are not the only reason for WSE’s recent successes. In the last few years, the bourse has made a concerted effort to recruit high-tech companies. Nowhere is this seen better than in the establishment of the WIG.Games index, which tracks the performance of gaming companies listed on the exchange.
Video games have been big business globally for some time, but emerging Europe was initially playing catch up. This has changed in recent years, and Poland currently leads the region both in the number of game developers and in the number of games produced.
Polish video game developers have been recognised as innovative and talented by gamers, critics, and the world’s videogame markets alike. Most notably, CD Projekt Red, the biggest game development and publishing company in the region, has seen great success with its The Witcher series of games.
It’s a perfect storm of IT talent, art, and economic support that comes from these companies being listed on the WSE.
“The listing of regional gaming companies on the WSE is a brilliant strategy,” says John Lawrence, chief investment officer at J.A. Lawrence Wealth Management. “This is a purely global play for Poland. Gaming itself is a global hobby shared all over the world. Listing these companies will continue to pull global investment into Poland.”
According to Mr Lawrence, the listing of gaming companies on the WSE could prove to be a virtuous cycle for Poland, with the success of the gaming companies, and the growth of gaming itself, pulling in more foreign investment. In turn, this capital influx is likely to maintain the same good macroeconomic climate that has helped the WSE get to where it is.
“Macroeconomic health in Poland and the inflows of investment in the WSE are working to catapult each other,” he tells Emerging Europe.
In 2020, the WSE also passed a significant milestone when it comes to the gaming market, as it now has more gaming companies listed than the Tokyo Stock Exchange and become a global leader of the gaming stock sector. This success is even more meaningful when placed in the context of Japan’s video game industry being the driving force behind the re-emergence of home video gaming in the early 1990s following the video game industry crash of 1983.
“Poland has lots of talent in the IT sector thanks to very good eduction in maths and physics, which helps with understanding programming skills,” Carsten Hesse, analyst and co-founder at Q.I.T.E. Analysis tells Emerging Europe. “With flagship companies such as CD Project being global market leaders in their segments, they are motivating others in the region to do something similar.”
The WIG.Games index has grown by 125 per cent since it opened in 2019, and analysts such as Mr Minocha believe that the success of the gaming industry will also drive investor interest in the sector.
“Poland’s gaming sector saw 32 per cent growth in revenue last year; this is expected to continue. In addition, inspired by the success of large gaming companies, investors are keen to invest in smaller gaming companies that are now going public,” he explains.
Europe’s second-largest IPO
Continuing on the high-tech note is the IPO of the e-commerce platform Allegro in October 2020, which ended up being oversubscribed by about 85 per cent and was the second largest IPO in Europe.
“I was impressed that Allegro chose to list in Poland and not in the US, where IPO valuations would likely have been higher,” says Carsten Hesse. “Allegro is an amazing company and will be a huge asset for the WSE in the future.”
According to Mr Dietl, the same retail investors that were attracted to the capital markets by the low interest rates, also ended up participating in the IPOs.
“Suddenly, share of domestic retail investors in the trading volumes increased from 11 per cent to over 20 per cent,” he says.
Allegro is one of the region’s biggest success stories, as the company began 20 years ago as a local start-up, going on to become one of the biggest e-commerce players in Europe.
“As the number one shopping destination for Poles, and a place to do business for thousands of SMEs, the decision to enter the WSE was a natural step in our path of development,” Allegro’s CEO Francois Nuyts tells Emerging Europe.
A successful IPO such as Allegro’s is proof that the WSE is closely following global digitalisation trends: trends which have been brought into sharp focus by the Covid-19 pandemic.
“Modern technologies are crucial in developing any market. We can see their increasing importance during the current pandemic, where we work remotely, socialise remotely and transact remotely. This is equally relevant for capital markets, and was recognised by many policy makers, including the EU with its EU Digital Finance Strategy,” explains Mr Heilbronn of the EBRD.
Exporting success to the region
Now that Poland’s capital markets have matured, it seems that the WSE is setting its sights on exporting this success to other countries in the emerging Europe region.
As Mr Dietl sees it, the WSE was built under very adverse economical conditions in 1990s Poland, and this type of knowledge can help various stakeholders in non-developed markets – including other stock exchanges.
“We’d like to share our expertise,” he says. “We still have on our team people who were building the exchange in the early 1990s, when the Polish capital market was unclassified. It is a unique opportunity for exchanges in the frontier or emerging capital markets to work with those who have been behind our rush to developed market status within 27 years from the re-establishment of the stock market in Poland”.
In September 2020, the WSE signed a term sheet with the Armenian Securities Exchange (AMX), which would see the WSE become a majority owner of AMX, with a 65 per cent stake.
Hayk Yeganyan, the CEO of AMX, is very much in agreement with Mr Dietl about the kind of opportunities for knowledge transfer that the deal allows for, especially the WSE’s experience when it comes to developing capital markets in a transition economy.
“They have done it successfully over the last 25 years, and we certainly need their advice in that sense: what to do within Armenia to develop the market,” he tells Emerging Europe.
Cross-listing and dual-listing opportunities, and expanding further across the region together with WSE are also among the benefits that Mr Yeganyan expects to reap.
“The Armenian economy will benefit hugely, due to businesses having access to larger pool of capital and better liquidity,” he says.
“The Warsaw Stock Exchange has acquired a lot of expertise in building a capital market and transferring such expertise should enable a step change in the level of development of less developed and smaller markets, as is in the case of AMX,” adds Pierre Heilbronn. “Such cooperation also entail a close link to Europe and the global investor community – a gateway for Armenian companies to raise funding more efficiently.”
Other countries in the Caucasus are also keen to boost their capital markets, including Georgia.
According to, Koba Gvenetadze, the governor of the National Bank of Georgia, capital market development is one of the priorities of both the bank and the country’s government.
“Over past few years significant reforms have been implemented, including a treasury market development strategy, inception of first generation legal and regulatory reforms and an upgrade of technical infrastructure,” he tells Emerging Europe.
“In order to support local bond market development, the National Bank of Georgia introduced monetary policy incentives in 2015, which triggered rapid growth of the size of the bond market. It is also expected that the recently implemented pension reform will have a positive spillover on capital market growth. The development strategy also foresees implementation of other vital components in the coming years.”
The next 30 years
As the Warsaw bourse looks to the successes of its past and its growth over the last 30 years, Mr Dietl is very optimistic about what the future holds for WSE.
In 2021, the company plans to further boost its new initiatives, such as a governance compliance system which can be used by stock exchanges, brokerage houses, and issuers to stay compliant with regulations, and a set of total cost analysis tools which help investors develop optimal investment strategies.
Additionally, in the third quarter of 2021 the WSE expects its first transactions from a new pre-IPO fund it has created, and in the fourth quarter the exchange expects to launch its new and proprietary bond trading system.
The WSE is also partnering with the Polish Agency for Enterprise Development (from the Polish Development Fund Group) on a project called Poland Prize, which will offer incubation opportunities for start-ups from the emerging Europe region.
Finally, in terms of IPOs, the WSE is expecting another good year, with approximately eight new firms ready to list in the first quarter.
From building a stock exchange from the ruins of the socialist system to becoming the main capital market player in the whole of emerging Europe, the Warsaw Stock Exchange has come a long way in three decades.
“We expect the WSE to see continuous prosperity via organic growth, mergers and acquisitions of other exchanges, and continuous technology offerings to other platforms,” says Mr Lawrence.
With the planned acquisition of AMX it is also clear that the WSE is ready to take on a more active leadership role in the capital markets in the region.
“Implementation of our strategy #GPW2022 will keep us busy this year. We are going to grow via adding new products and services for the existing clients, soft diversification into new segments and improvement of our international presence. Our expansion is primarliy driven by development of cutting edge technologies and solutions,” Mr Dietl concludes.
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