Warsaw puts its money where its mouth is

DW: As the European Central Bank winds down Quantitative Easing (QE), what could be the impact for equites in Poland?

Marek Dietl: Global risk factors, especially more restrictive US monetary policy and a series of interest rate hikes in the US, did not harm global stock markets. 

And from my perspective, the European Central Bank's policy of QE won't have a huge impact in Poland. The central bank decided earlier this month to keep interest rates unchanged, with the key rate at a record-low 1.5 percent. QE winding down may have a negative impact on financial markets, particularly eurozone markets, but let's not forget, if the ECB is starting to wind down, it is because European economies are performing much better.

How long do you see the boom on Warsaw's exchange continuing? What are the main threats to this?

We're calm about the situation on the Polish stock market. One of the factors that positively influenced the level of turnover on the Warsaw markets in 2017 was the strengthening of  the Polish currency, the zloty. We grew both in euro and dollar terms, have relatively low valuations and impressive macroeconomic performance. All of this gives confidence to investors and encourages their activity.

Our bourse topped all European exchanges in terms of the increase in investor activity on the equity market over the past year. According to FESE statistics, in 2017 turnover on the Warsaw Stock Exchange (WSE) reached €55.8 billion ($72.5 billion) compared to €43.7 billion in 2016. Up 28 percent year on year, the exchange ranks first, ahead of the Bucharest, Vienna and Budapest stock exchanges, as well as Deutsche Boerse and Euronext.

In 2017, our blue chip WIG20 index, with an increase of 55 percent year on year in dollar terms, produced one of the best rates of return worldwide. The index, which is based on the value of portfolios of shares of the 20 major and most liquid companies on the WSE Main Market, took sixth place in global equity index rankings.

And this year our indices hit a record high. On 23 January, 2018, WIG peaked at 67,933.05 points during the trading session, hitting an all-time high. Things are going quite well.

What are your plans for the future of the Warsaw Stock Exchange?

Today, the Warsaw Stock Exchange is fifth in Europe and first in the CEE region in terms of the number of listed companies (almost 890), and its market capitalization exceeds €165 billion. Last year we had IPOs of companies such as Play Communications (€1.03 billion – the biggest IPO of a private company in our history and the biggest flotation in Warsaw since 2011), Dino Polska (€394 million) and others. Those successful public offers are a show of confidence in the Warsaw bourse, confirmation of its attractiveness.

Do you envisage tie-ups with other bourses, and have concrete moves been made in this direction?

I strongly believe that stock exchanges should consider deeper cooperation. Maybe even more than in the past. As the GPW Group [which owns the WSE], we're interested in cooperation with exchanges in countries stretching eastwards, even to East Asia, but also closer to home in Europe with the countries from the Visegrad Group, but not only. In terms of the CEE region, we see potential to strengthen our position especially in the post-trade segment. Meanwhile, in Asia, where environmental awareness is growing and where there might be a scope for development of their electricity or gas markets and are analysing various options at the moment. 

Our experience and capital strength makes us ready for going global. We feel we can provide services related to transactions or post-trade. However, we are aware that the journey to internationalization is a long one.

The Polish economy is doing well, but certain structural problems persist, what do you see as the main issues still to be resolved?

According to analysts, the Polish economy is doing exceptionally. Poland's economy grew an impressive 4.6 percent in 2017, preliminary data published by the Central Statistical Office showed. This was driven by private consumption resulting from a consistent increase in wages, high consumer trust, low unemployment and prosperous fiscal policy. Household consumption expenditure, which accounts for 61 percent of GDP, grew 4.7 percent in 2017, its strongest rise in nearly a decade, resulting from social spending by the government and higher wages. The Ministry of Finance also predicts that the Polish budget deficit in 2017 will amount to 25.4 billion zlotys – only 42.7 percent of the value planned in the budget act.

How will Brexit potentially benefit the Warsaw Stock Exchange? Are you looking to take advantage of this and if so how? 

We see an interest in the Polish capital market and Warsaw continues to prove itself as an ever-growing regional financial hub.  Brexit might be a chance to firmly put Warsaw on the world's investment map. 

The WSE is an important part of Warsaw's business ecosystem. Investing on our exchange can be an interesting alternative for global investors. Even now, they contributed 52 percent of the trading in equities on the WSE Main Market in the first half of 2017.

I see a trend that Warsaw is increasingly perceived not only as a national or regional stock exchange, but as one of the important places in Europe for investing in dynamic small and medium-sized companies. This helps to create the image of Warsaw as a hub for innovation and entrepreneurship. Thus, we'll try to take advantage of Brexit in pursuit of raising the Warsaw Stock Exchange's profile and at the same time bring the attention of global investors to the whole CEE region.

Is Poland still an emerging market? 

According to MSCI, Poland is an emerging market, whereas according to FTSE Russell, Poland will soon be a developed market. This places us in a sweet spot, as both emerging and developed investors will be able to invest in Poland.

I think we can say Poland has all the features of a developed market including advanced infrastructure, clear policies, as well as secure trading and post-trade services.

Marek Dietl was President Andrzej Duda's economic adviser before taking the WSE position.

The interview was conducted by DW's Jo Harper.