(Illustrated by Randy Dwicaksono)

The Strong Potential for Economic Growth within Central Europe


FEBRUARY 03, 2021

Economies and capital markets from around the world are starting a new decade within the 20th century. This decade, however, is shrouded in an air of uncertainty caused by the coronavirus pandemic. As controversial as this may sound, this uncertainty – fueled by subsequent unknowns such as those regarding the virus mutations – proved beneficial for stock markets.

It was this uncertainty that triggered an unseen level of movement on capital markets, with the Warsaw Stock Exchange (GPW) I run being a flagship example. In 2020, the GPW has become the number two stock exchange in Europe in terms of growth of liquidity.

The year 2021 will mark a jubilee for the Warsaw Stock Exchange. On April 16, we will celebrate the 30th anniversary of the inaugural session of the stock exchange, reactivated after a decades-long intermission marked first by war, and then by communist captivity.

The numbers best show the large leap the Warsaw Stock Exchange has made over this period. It took 28 years for the GPW to rise from the level of a marginal market, to that of a developed one. Simply for the sake of comparison, in the case of South Korea the process took 55 years. The GPW is an obvious leader in the region in regards to capitalization, with a lead of almost EUR 12 billion over the Vienna Stock Exchange, and clearly distancing itself from other stock markets in Central and Eastern Europe (CEE).

The GPW is also among the top leaders concerning a percentage value of the capital market in relation to GDP (25.4 percent). The capitalization of companies listed on the GPW amounts to more than EUR 235 billion. However, three decades ago, the GPW closed the year 1991 with nine listed companies whose capitalization equaled the value of today’s EUR 0.04 billion only.

Today, the strength of Poland -- and the entire CEE region -- is largely due to the number of fast-growing technological companies within the area. As they develop, they need capital. According to the estimates of the Polish Development Fund (Polski Fundusz Rozwoju) and Dealroom co., start-ups from CEE region reported an almost fivefold growth in terms of Venture Capital investments in 2015-2019, namely to $1.8 billion. This is confirmation that powerful investors see an enormous technological and economic potential within the CEE region, and that they already expect big returns in the near future.

It is worth noting that banks continue to finance 90 percent of the economy within our region. However, they choose predominantly companies from so-called traditional sectors, while EU funds are marked first of all for the development of infrastructure. This restrains access to funds for new companies, whom are looking more and more often towards the capital market.

This concerns the so-called Covid-winners in particular, who are typically game producers and the medical and technological sectors. During the pandemic, when access to loans is even more difficult, promising businesses have a better chance at success in the stock exchange if investors make decisions based on a company’s potential and business model, rather than based on its past -- as banks often do.

Central and Eastern Europe has the potential to grow much faster than the entire EU, but the fragmentation of markets continues to be a challenge. Central and Eastern European markets are too small to compete individually against Western European markets. Integration is needed to attract first-rate institutional investors to our region.

I place much hope in the EU’s Capital Markets Union, which has supported the recovery of capital markets since 2014. Another crucial opportunity for support is the Three Seas Initiative, which was established in 2015 to strengthen cooperation among countries from the areas between the Adriatic, Baltic, and Black seas, in the fields of digitalization, energy, and transport.

I believe that the GPW, as one of the twenty-five best developed markets in the world, should play the main role in promoting and supporting the development of our region. For years, we have expanded cooperation among the stock exchanges of the Three Seas countries. We have achieved this by organizing and engaging in events that are crucial to strengthening the attractiveness of these markets to investors.

In late 2019, we launched the CEE plus index which was based on the value of the portfolio of the largest and most liquid companies listed on the respective stock markets from the Visegrad Group, as well as Croatia, Romania, and Slovenia. Furthermore, in September 2020, we organized the Three Seas Stock Exchanges Conference under the honorary patronage of Polish President Andrzej Duda. 

The growing significance of the GPW is confirmed within the data released by the Federation of European Securities Exchanges (FESE). The GPW is ranked second among Europe’s stock markets in regards to liquidity growth, which is measured by the value of shares traded on the order book. In terms of liquidity measured by the turnover of portfolios, we have overtaken some of Europe’s stock exchanges. Along with other developed markets like Switzerland, we are also in the lead of European stock exchanges regarding the turnover value. For the GPW, it has grown to the level of 52.5 percent in the third quarter of 2020, in comparison with 33.2 percent in the corresponding period in 2019.

The reason I am saying all this is because there are many companies in the region that are mature enough to enter the public market – I mean both the so-called unicorns, as well as those with the potential to become them in the next few years. The GPW is a perfect place for these companies to both gain capital and continue their development. WIG20, as the crucial index of the Warsaw Stock Exchange, is becoming similar to the structure of the United States and South Korean economies, where technology is currently the focus. As of last October, we are also the world leader in terms of the number of listed companies from the video game production industry, moving ahead of the Tokyo Stock Exchange. The total capitalization of Poland’s gamedev sector amounts to more than $10 billion.

The fact that Poland’s capital market has been classified among the group of developed markets attracts the attention of global investors. This is best exemplified by the debut of Allegro (over EUR 2 billion) -- the biggest debut in more than a decade within CEE, and one of the world’s largest debuts last year. High evaluations, the presence of foreign technology funds among investors, and the continued liquidity of trading in shares only confirm that the GPW is a fully developed market.

To boot, the Warsaw Stock Exchange has one more advantage – it offers access to broad and diverse investment capital,while at the same time being much lower to enter cost-wise than in the case of debuts on the large foreign stock markets. The cost of introducing shares to trading and listing on GPW is several times lower than on the LSE, Nasdaq, or Euronext.

The build-up of potential opportunities for growth, an appetite for success, an innovative approach, and attractive financial conditions, provides a solid foundation for the region’s capital markets during such uncertain times.


Marek Dietl is the CEO of Warsaw Stock Exchange (GPW). The views expressed in this article are those of the author.