What It Looks Like When the State is a Good Owner of the Stock Exchange

Twenty-two years ago, the daily trading volume of shares on the Warsaw Stock Exchange was $1,000. Today, nearly one billion euros is traded daily on the same market.

Such a strong capital market would not exist without a robust Polish economy and a smart strategy for the development of the stock exchange, in which the Polish government played a major role.

Although trading on the exchanges in Warsaw and Zagreb began almost simultaneously, the macroeconomic picture of the two countries is significantly different. Namely, Poland’s GDP has been growing for 22 consecutive years. Only South Korea and Germany have had longer historical growth series, but due to countless factors, comparisons with Croatia fall flat.

One of the most important factors is size, which is crucial in the strategy for developing the stock exchange, as well as the economy in general. Poland joined the EU in 2004, and at that time, its GDP represented 38 percent of the GDP of all other new EU member states, while the country was in a strong investment boom. In other words, the stock exchange could develop under ideal conditions.

As early as 2005, the first foreign issuer came to the Warsaw Stock Exchange, establishing it as a regional leader in initial public offerings (IPOs). It is precisely the IPOs that are responsible for the flourishing of the Warsaw Stock Exchange, which has outgrown the Frankfurt Stock Exchange in this segment.

Today, shares of 440 companies are listed in Warsaw, of which 50 are foreign. In addition, the exchange offers more than 400 derivatives of securities, mainly related to corporate debt, and the strong gas and electricity market cements its position as the fourth largest exchange in Europe. The total market capitalization of all securities listed in Warsaw is just over 130 billion euros.

The main investors in Warsaw are the British, who account for 59 percent of the total trading volume, followed by the French with 20 percent, the Czechs with 6 percent, while investors from Austria also hold more than three percent. Trading and liquidity are largely supported by Polish pension funds, which have portfolios of 66 billion euros, and investment funds with assets of 38 billion euros.

Stories about the purchase of the Zagreb Stock Exchange, which were relevant a few years ago, do not interest the Poles much today. Blażej Karwowski, spokesperson for the Warsaw Stock Exchange, says that interest in acquiring smaller markets is almost non-existent, especially due to different trading platforms, customs, and market regulations.

–Merging several smaller markets, or acquiring a smaller market by a larger one will not save anyone from alternative trading platforms that will appear in your country after joining the European Union – claims Karwowski.

The decisive influence for the rapid rise of the Warsaw Stock Exchange, which is also called the ‘London of the East’, according to Karwowski, was indeed the largest owner – the Polish state. Although the law states that the state should not own more than 35 percent of the exchange, the Polish government issued itself privileged shares, which give it 70 percent of the votes at the General Assembly.

The development strategy was quite simple. All state companies that were privatized had to be recapitalized through the stock exchange, while enormous efforts were simultaneously made to attract foreign investors, who ‘hooked’ onto ownership stakes in huge energy companies and mines.

–Now we have a broad and diversified base of investors that ensures our growth and further strengthens our growth potential in the future – conclude the Warsaw Stock Exchange.