‘Warsaw Stock Exchange aspires to become CEE hub for high-tech startups’
Asset News: How does GPW position itself in the European stock exchanges' landscape today?
Marek Dietl: The Warsaw Stock Exchange is celebrating its 30th anniversary in April 2021. This is a good opportunity to take stock, which proves highly positive. We are the unparalleled leader in Central and Eastern Europe and enjoy a well-established international position, corroborated not only by the 2018 decision of FTSE Russell to promote Poland to the group of 25 developed markets globally (Poland was promoted within only 28 years) but also by our performance. According to FESE, GPW generated more than 80% of equity turnover on all CEE exchanges in 2020. We ranked first by percentage increase in equity turnover.
Despite many turbulences caused by the COVID-19 pandemic, GPW reported record-breaking results in 2020. The equity electronic order book turnover value on GPW’s Main Market increased by 55.3% year-on-year. The increase was largely driven by individual investors who generated one-fourth of equity turnover on the GPW Main Market in 2020, more than doubling the 2019 figure. NewConnect also broke new records: the EOB turnover value increased by more than a factor of 10 year-on-year in 2020.
Evidently, the Warsaw Stock Exchange has a huge potential of dynamic growth, just like all of Central and Eastern Europe. It is our aspiration to remain the regional leader. I believe that integration is a key success factor, which is why we are developing international co-operation, for example by creating the CEEplus index in 2019 (the index covers the biggest and most liquid stocks listed on the exchanges of the Visegrad Group, Croatia, Romania, and Slovenia) and by taking the initiative in the Three Seas Exchanges Group.
Have Allegro's listing and international investors’ focus on stocks like CD Projekt last year been a turning point for the Warsaw Stock Exchange?
Indeed, it was a turning point as it put us on the radar of international investors. However, I believe that the growing recognition of the Polish stock exchange began earlier, with the promotion of the Polish capital market to developed markets, which attracted issuers’ and global investors’ interest in GPW. The presence of international technology funds among our investor base combined with strong liquidity of our equity market are best proof that GPW is a fully-fledged developed market.
Last year’s IPO of Allegro.eu SA, CEE’s biggest IPO in more than a decade and the ninth biggest IPO by value globally (€2.7bn), was a crowning achievement. The spectacular success not only sparked interest of retail investors (36,000 subscriptions for shares) and international investors but also encouraged potential IPO candidates. We see growing interest mainly on the part of high-tech, biotechnology, and game development (gamedev) companies.
Today, GPW is the global leader by the number of listed gamedev stocks, ahead of the Tokyo and the South Korea stock exchanges. We list nearly 60 companies on both our markets but the sector has even more potential as the number of potential new listings is growing. Close to 58% of all IPOs on GPW in 2019-2020 were gamedev stocks.
The success of CD Projekt certainly encouraged investors to buy gamedev stocks. CD Projekt is the biggest gamedev company listed on the Warsaw Stock Exchange with a capitalisation of €5.2bn as at the beginning of March 2021. Interest in the gamedev sector is reflected by the WIG.GAMES index which gained more than 50% in 2020.
We remain interested in acquiring a majority interest in the Armenia Stock Exchange.
What are GPW’s growth and innovation plans?
We operate in Poland as the GPW Group present in the key areas of the local capital and commodity market. The GPW Group pursues the strategy #GPW2022, which covers a range of initiatives aiming to bolster the growth of the Warsaw Stock Exchange and diversify our services. We are focusing on high technology, which we believe are the future of the capital markets.
This is why we are growing the business of our technology arm, GPW Tech, which has recently completed the second phase of development of a trading system equipped with functionalities dedicated to financial instruments. GPW Tech will soon market new technology tools: GPW Tech GRC (compliance risk management tool), TCA Tool (application for the identification and analysis of transaction costs), and an index calculation system.
We are developing the GPW Data project to create an innovative system based on artificial intelligence for the collection and distribution of market data supporting investment decisions of capital market participants. We are focusing on the development of an exchange data repository including prices of traded instruments as well as issuers’ periodic, current, and non-financial reports. Moreover, we have initiated the first phase of the strategic initiative GPW Private Market, which is a new crowdfunding platform matching companies in need of capital with investors on a non-public market. The platform enables game developers to raise money for the production and distribution of games in exchange for blockchain tokens.
GPW announced the acquisition of a 65% share of Armenia’s stock exchange from CBA last September. What are your plans there? Do you target other acquisitions?
We remain interested in acquiring a majority interest in the Armenia Stock Exchange. If the political situation allows, we would like to conduct a due diligence in Q2 or Q3 2021. We are working on a business plan together with the European Bank for Reconstruction and Development (ERBD) and AMX. We may in the future establish relations with operators in the Caucasus and broadly speaking in Eurasia, including equity relations.
Our IPO prices are several times lower than those on LSE, Nasdaq or Euronext.
European stock exchanges have been facing IPOs’ scarcity in recent years. How did GPW cope with this phenomenon?
Fast-growing technology companies are a key asset of GPW and of Central and Eastern Europe as a whole. GPW aspires to become the regional hub for high-tech startups and to attract unicorns to our market. According to the Polish Development Fund (PFR) and Inovo Venture Partners, venture capital (VC) fund assets in Poland increased by a factor of 17 in 2015-2020 and reached more than €462m in 2020, which confirms that large international investors recognise our technological and economic potential.
GPW attracted seven IPOs on the main market and 14 IPOs on NewConnect in 2020, including mainly high-tech, biotechnology, and gamedev stocks. The total value of IPOs on the GPW Main Market and NewConnect was more than €2.5bn in 2020, the biggest annual IPO value since 2010. Issuers are coming to GPW mainly because we offer access to a diverse group of investors at a cost of introduction and listing that is much lower than what the biggest European exchanges charge. Our prices are several times lower than those on LSE, Nasdaq or Euronext. As an exchange with an innovative business model, a focus on high technology, active international presence and excellent performance, GPW is considered a very attractive venue to go public.
Our index initiatives dovetail with the objective of improving the quality of non-financial reporting by public companies, which is GPW’s aspiration and the reason why we are working with EBRD to publish non-financial reporting guidelines.
How is GPW evolving on the bond side?
Since its launch by GPW in 2009, the bond market Catalyst has met all expectations by becoming a platform which matches issuers who look for financing and investors interested in new attractive opportunities to invest capital and diversify asset portfolios.
Looking for additional sources of financing in the time of economic uncertainty, Catalyst issuers placed more than €235.3 million in bonds in 2020, an increase by one-third year on year. In late 2020, GPW announced a regulatory initiative towards transformation and simplification of Catalyst. The initiative addresses the needs and expectations of market participants in line with the guidelines defined in Poland’s Capital Market Development Strategy. According to those regulatory amendments, Treasury bonds will be the only debt instruments eligible for admission and introduction to trading on the regulated market and in the alternative trading system (MTF) operated by BondSpot. This should in future help to centralise trade in Treasury bonds on the BondSpot markets.
Catalyst has for years been one of the fastest growing bond markets in Central and Eastern Europe.
We are working to expand the offering of ETF products available on the Polish market.
What are GPW’s ambitions on the ETF segment?
Exchanges around the world are expanding their ETF product offering. ETFs are now listed on many European, American, and Asian exchanges. One ETF can be traded on several markets. Passive investing is a new emerging trend in Poland but investor interest in this market segment is growing. ETF turnover on GPW increased by a record high 339% in 2020.
We are working to expand the offering of ETF products available on the Polish market. Last February, Beta Securities introduced a new ETF to trading on GPW: an ETF on Nasdaq-100, one of the most replicated indices globally. This creates new investment opportunities for retail investors. As the ETF has an embedded currency risk hedge, it addresses the needs of Polish investors. Nasdaq-100 covers the 100 biggest US technology (non-financial) stocks listed on Nasdaq. Beta Securities's Nasdaq-100 ETF is the first ETF with a currency hedge. As a result, fluctuations of the exchange rate of złoty (PLN) against the currency of the country of the index (USD) do not affect the valuation of investments. Another ETF on S&P500 in PLN, also with an FX hedge, has been trading since 15 March 2021.