Capital Market in Poland

The Warsaw Stock Exchange S. A.  (Giełda Papierów Wartościowych S.A.) (WSE) is one of the largest stock exchange platforms in the region of  middle -eastern Europe. It is also the leader amid stock exchanges in middle -eastern Europe taking into account the number of publicly listed companies as well as the total capitalisation. The participation of the WSE  in the share trade on the stock exchange market amounts to 81 % in the region. According to the Federation of European  Securities Exchanges (FESE) WSE took  first place in Europe in 2022 as it comes to the increase of share trade and  third place when it comes to the value of the initial offering. At the end of 2022 WSE was also deemed to be the second market in Europe with respect to liquidity and reached the status of a world leader in terms of the number of the listed companies from the sector GAMEDEV. WSE  operates the regulated market for shares of stock and other derived instruments as well as the alternative share market NEW CONNECT for growth companies. WSE also develops CATALYS – a market designated for issuers of corporate bonds and municipality bonds and for the energy market. From the 9^th November 2010 WSE has been a public company  listed on the Warsaw Stock Exchange Market. There are different kinds of financial instruments that will be offered on the capital market for sale and WSE also offers different services associated with serving the market (see diagram 1 below)

 

where:
1 Obrót means trade
2.Obsluga emitenta means issuer’s service
3. Członkostwo means membership
4. Akcje i inne means shares and other
5. Pochodne means derived
6. Obligacje means bonds
7. Rynek towarowy means commodity market
8. Usługi post-tradingowe means post-trading services
9. Sprzedaż informacji means sale of data

Diagram 1. Capital Group  GPW
source: https://www.gpw.pl/grupa-kapitalowa.

WSE is the most important source of gaining capital for enterprises and municipalities. This contributes to a dynamic development of the Polish economy, to the building of new jobs, competitiveness of Polish enterprises in the international sphere and finally to an increase of  prosperity of the society. At present, Polish enterprises can receive further perks such as increased recognition, creditability, efficiency and transparency in management.

WSE organises the trade in financial instruments on the regulated and alternative markets. Transactions on the spot market will be conducted while ensuring  the buyers and the sellers displaying their prices for securities  at one place and time in order to lay down the transaction rate and its conclusion. As the exchange rate of listed financial instruments are agreed based on the offers of the sellers and the buyers, this market is referred to as the order driven market. In addition, OTC (over – the – counter) trading is also provided through WSE.

The following organised markets are operating through WSE:

• Main Market – refers to the regulated market  which trades in shares of stock, subscription rights, investment certificates, subscription warrants, ETG participation titles, structured products and other derivatives

Within the Main Market there are two markets operating namely:

• Primary Market means an official market where official listing takes place. Securities will be sold and purchased through this market meeting the criteria of a certain value and dispersion whose issuers published their financial annual statements for the last three years,
• Secondary Market is a platform at which financial instruments of the smallest companies and of lower dispersion than on primary market will be traded

Stock quotes at WSE will be done in the system of continuous trading and within the  single listing system (fixing)

NewConnect means a market for small and medium sized companies operating outside the regulated market as an alternative trading system. Through NewConnect, trade in shares, subscription rights and other financial instruments is conducted and addressed to companies operating in innovative sectors, mainly with intangible assets (e.g., IT, electronic media, telecommunication, biotechnology, environmental protection, alternative energy and modern services)

Catalyst is a platform operating retail segment within a regulated market and alternative trading system and supports, within the system of continuous trading,  trading in corporate bonds, municipal, cooperative and Treasury bonds and mortgage bonds.

Polish Power Exchange S. A. (TGE)  is a platform at which trade is provided in electricity, and natural gas as well as other rights to certificates of origins of electricity gained from renewable sources . Within  TGE the following markets operate:

• Energy market
• Property rights market
• CO₂. Emission allowances market

BondSpot S.A. was established in January 1996 based on the initiative of major Polish banks and brokerage houses. It is rather a unique institution in Poland licensed to organise and manage a regulated market  and alternative trading system (MTF)  Since November 2000 it has been a member of the Warsaw Stock Exchange capital group. Within the scope of the BondSpot, their areas of activity encompasses trading of treasury bills and bonds  as well as debt securities.

The Participation of foreign investors in the trade of financial instruments at WSE in the first half of 2022

Main WSE Stock Market

Within the first half of 2022 on the Main WSE Stock Market, foreign investors had the major share Their participation in  trading amounted to 63 % at that time and was  8% higher compared with the year 2021 (see diagram 1) and this shall be deemed the highest involvement over the last 10 years. However, domestic investors were able to generate 18 % of trading and this was a downfall by 6% in relation to 2021. In addition, institutional investors participated in 19% of the trading, 2% lower than in the first half of 2021. Within the first half of 2022 domestic institutions and market makers took  first place together (at the level of 27.5%) and  third place was secured by enterprises (17.5%).

 

Diagram 2. Investor Structure on the Mane Stock Market (in %)

Source: WSE data , on the basis of market (broker) orders 

NewConnect

On the NewConnect market the main players are domestic individual investors. In the first half of 2022 they stood for 83% trading which corresponded with a  fall of 5% (see diagram 3 below). Foreign investors were able to generate 6%. However, institutional investors surprisingly made  11%, 5 % higher than in 2021. Enterprises gained 39.7 % and market makers 27.9% and other entities 27.5%.

Diagram2. Investor structure at NewConnect Market (in %.)

Source: WSE data, on the basis of market (broker) orders

Capital Market in  2022

The market is currently facing strong recession by testing the minima in 2020 (Covid- 19 Pandemic ) and 2009 (financial crisis) Analysing the present market slump WIG 20 USD  index should be taken into account (it seems to be a good tool to assess the attractiveness of the Polish market from the perspective of a foreign investor). Rather significant slopes in the previous months, connected with depreciation of the Polish currency (PLN), led to a situation in which the minima from 2020 and 2009 were broken in late August and September 2022. In addition, strong USD/PLN  fluctuations in October 2022 caused initially deepening declines that were last observed in 2003 and closing with a strong growth over 15%. Thus WIG 20 USD started the following month at a level comparing with the time of financial crises from 2009 and Covid 19 Pandemic 2020.

Diagram 3 listing of the index  WIG-20 in the years 2000-2022

Source : WSE data  Citibank

Investments onto the Polish capital market at the beginning of 2022 were the worst comparing with other capital markets. Similar (depressing) situations in terms of investments onto the Polish stock exchange market were noticed in 2014.

On the one hand, the condition of the capital market does not reflect the state of the Polish economy and the relation of capitalisation of the stock exchange market to GDP is definitely too low (around 30% while reaching 50% in EU). The flow to funds is still on a strong minus level and  foreign investments remain still very popular at the cost of domestic funds. The Polish economy shows a deficit when it comes to financing of the economy. The capital market finances after all that are deemed to be a source for the growth in productivity of the economy. In this respect we can say that we are facing stagnation. A strong capital market determines the competitiveness of every economy and it contributes better to innovations than to debts in the banking sector.

The flow to investment funds amounted to only  177 million PLN in the period from 2010 until 2022. PPK received 7.3 billion PLN only and this shows a balance of 7 billions PLN with assets amounting to 200 billion PLN. This does not mobilise the savings of Poles. The society prefers to keep their money in banks and  homes. Long-term activities of individual investors is rather at a low level. This is due to an insufficient sense of security and the insufficient observance of investors rights and any changes undertaken here are happening too slow. Furthermore, any market abuses disturb its positive perception. The Poles regard themselves as not well enough trained in investments and this is reflected in their engagement in the market. Additionally, a negative aspect remains the rather high number of state owned companies within the WIG 20 Index and  foreign capitals do not like state owned business as the risk remains high that the shareholders ‘ interests can prevail.

On the other hand the advantage of the Polish market is its leading role in the region and  advanced technology. When it comes to technical and organisational solutions, the Polish stock exchange market is assessed positively (external assessment in 2018 from the FTSE Russel agency that classified WSE as a developed market). The well balanced structured of investors and success in IPO this year show positive potential. From the infrastructure point of view we have a very well organised market that is advanced technologically, secured and respectively organised. The good thing about the market is that the financing does not occur at the start – up level, the significant role of the funds and developed Venture Capital market. We have the largest stock exchange market in the region and attract not only Polish but also foreign champions (Allegro or Pepco).

To sum up,  confidence in the Polish capital market is very low at the moment. This situation will be intensified by a low rate of returns, low investment culture as well as the low capitalisation index of WSE to GDP and banks’ position also historically still remains strong when it comes to providing financing hindering of the development of the capital market.