Direct from the trading floor

Marek Dietl Photo: GPW
Poland Today caught up with the head of the Warsaw Stock Exchange, Marek Dietl, to talk about market trends in the region and a few innovations arising from the exchange on the latest episode of PT Live.

It has been a rocky year for capital markets around the world. The US-China trade crisis has whipped up global headwinds while an EU-wide downturn and a “tsunami of regulations” in the EU have made for interesting times for Europe’s stock exchanges, so says Marek Dietl, President of the Management Board at the Warsaw Stock Exchange (Giełda Papierów Wartościowych: GPW). “We have seen a decreasing number of listed companies worldwide,” he said, touching upon the trend of companies turning to venture capital and private equity for financing rather than IPOs. “But for the top-listed companies, we have seen an increase in market capitalisation vis-à-vis GDP.”

FTSE Russell upgraded Poland to developed market status last year and according to Dietl, the move has produced varying results for different sized Polish companies. “The 37 companies on our market, which are in this All Cap developed index, saw their trading volumes increase and they can access practically an unlimited pool of capital,” he said. He made special mention of gaming stocks (e.g. CD Projekt) and retail stocks such as the Dino group, which operates more than 1000 grocery stores around Poland. Since its float in April 2017, it has seen its market capitalisation grow by 200% and stock quickly make the WIG20 index, which comprises the top 20 companies listed on the exchange. 

But the upgrade has also resulted in a more competitive environment with the capital pool tilted towards the big end of town at the expense of companies at the beginning of their growth cycle. In fact, Dietl suggested that the previous conditions may have been more favourable to smaller companies as “the emerging market funds are less picky than the developed market funds”. But he did emphasise that these companies can still profit from their access to the MSCI Europe Index that represents both large and mid-cap equities across the 15 developed markets in Europe. 

The change in status has naturally broadened the net of capital and now the WSE finds itself engaging with investors less versed on the dynamics of the Polish market. Dietl said that the WSE takes a layered approach to introducing foreign investors to the local markets and companies. “First, we have to sell Central Eastern Europe and explain that it’s as stable as the European Union but with more positive growth rates,” he said. “We have to then focus on Poland’s macro story, which is excellent. And then the particular companies or indexes. That’s why it’s very important that we cooperate very closely within Central and Eastern Europe because, first, it’s about selling the region.” 

This September at the Economic Forum in Krynica Zdrój, the WSE launched the Three Seas Exchanges Index, which draws together 100 of the most liquid stocks listed on CEE exchanges, including Bratislava, Bucharest, Budapest, Ljubljana, Prague, Warsaw and Zagreb. With a 50% share, the WSE is responsible for the calculation and publication of the index. “It’s mainly designed for East Asian investors,” Dietl said. “For example, why should a Chinese investor in Hong Kong invest in a market like Poland, which is half the size of one Chinese province and 15,000 km away? With this index, it’s much easier for them to digest the idea of investing in companies from a collective of five countries with a very strong macro story.”

Poland’s highly diversified business landscape presents the WSE with unique challenges. Only 0.2% (3,296) of Polish companies are considered large enterprises (250+ employees), contributing 48.6% share of GDP, and just 432 of them are currently listed on the exchange. As a result, the WSE runs an alternative exchange called NewConnect to service the next biggest segment of companies: the estimated 15,000 mid-sized firms (50-249 employees). This multilateral trading facility allows these smaller companies to float shares without the same entrance costs and reporting requirements as the standard exchange. 

Dietl also talked about the WSE’s foray into the tech world. Along with the development of a blockchain platform for clearing and settlement, the WSE has developed an R&D centre, which is in the process of developing its own medium-sized exchange platform. “We are designing a system especially for small exchanges. The systems designed for larger exchanges are simply too big and too expensive for smaller exchanges, which limits their competitive edge,” he said. “We want to make our platform very light, flexible and customisable for different markets. So hopefully we’ll have a system to be used in some countries in the Kazakh region, Central Eastern Europe and also in some Arab countries.”

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Written by: William Burke