Local stock exchanges will find a niche for themselves

The prospects for the stock exchanges in our region were the main focus of the debate “The future of the capital market and stock exchanges in Central and Eastern Europe”, which was held on Tuesday during the Economic Forum in Karpacz. The participants of the debate agreed in principle that the boom on the capital market is likely to continue. And this will also favour local stock exchanges despite their weaknesses.

Low interest rates favour stock markets, while the current economic situation favours the financial markets. As long as low interest rates, fairly high inflation (even very high in the case of our country) and low unemployment continues, capital will flow to the investment market. This means the stock market, but also the real estate market - explained Iwona Sroka, a board member of the property developer Murapol, and former president of the Central Securities Depository of Poland for many years.

Jacek Chwedoruk, managing director of the Rothschild investment bank in Warsaw, pointed out that actually since 2009, which was the beginning of the boom after the global financial crisis, most asset classes have been recording positive rates of return. - Whatever we invest in, we will make profit - commented Chwedoruk.

Prof. Krzysztof Jajuga, lecturer at the Wrocław University of Economics and president of CFA Society Poland, warned that from historical experience, excessive optimism on the markets is dangerous. - When everyone is happy, a red light always goes on in my head. This was also the case in 2006. At that time, everyone thought that the phenomenon of business cycle was a thing of the past, and that we had learned to manage crises. But every boom has to end at some point. The pandemic has not halted the current one, only slightly disrupted it - he cautioned.

Professor Jajuga admitted, however, that as long as there was liquidity in the markets, a change of the current trend was unlikely. - It seems to me that investors are overreacting to any news that central banks will reduce asset purchases, he said, stressing that for some time now central banks have been paying more attention to maintaining financial stability rather than to their inflation targets. 

Beware of economic bubbles

Participants of the debate pointed out that economic bubbles may have already formed in some of the most popular market segments. This applies to tech companies and cryptocurrencies, to give an example. But even if the bubbles burst, a certain part of assets from these markets will keep their value.

- In my opinion, cryptocurrencies are a bubble. But this is not necessarily a neagtive phenomenon. We have to keep in mind that there was once a bubble on the railway market, too, which - after it burst - left something useful behind it. The same will happen this time. When the bubble bursts, we will be left with long-term projects using blockchain technology, which cryptocurrencies have popularised - said Lukas Bonko, CEO of the Bratislava Stock Exchange.

In light of this, the problem for CEE financial markets could be a shortage of attractive assets. - The number of IPOs in the region has been low recently. There is hardly anything to invest in. There are ten companies controlled by the State Treasury listed in WIG20, and almost no tech companies. In such circumstances, PE and VC funds, investing outside the public market, become increasingly popular - commented Chwedoruk.

Iwona Sroka pointed out, however, that such a perspective is too narrow. - New technologies are entering all areas, not only in the form of tech companies. For example, they are used in the construction industry - she argued.

Mrs Sroka also emphasised that although in 2020 investors’ attention was indeed shifted mainly to the so-called new economy businesses, like Allegro and CD Projekt, many “old economy” enterprises were also faring quite well, including the retail sector.

Attractive structure of the economic sector

The former president of the Central Securities Depository of Poland pointed out that the Polish stock exchange would remain attractive both to investors and share issuers alike, even if the structure of the economic sector does not change radically. Many investors prefer to focus on the local market. Share issuers, on the other hand, unless they are planning international expansion, are resigned to seeking capital in the country.

- In light of this, the fate of the Polish stock market will be closely linked to the condition of the Polish economy - explained Mrs Sroka.

Succession in companies is an opportunity for stock exchanges

Lukas Bonko also stressed that there is still room for local stock exchanges, even such small ones as the one in Bratislava.

- I believe that the fact that many companies are in the process of a generational shift - in other words a succession process - is a great opportunity. Younger business owners may be more willing to enter the stock exchange - he explained.

The CEO of the Slovak stock exchange highligthed that the problem is not a shortage of domestic capital - the problem is that there is nothing to invest in. That is why such off-exchange securities markets as bonds are flourishing. 

Both Bonko and Sroka agreed that the consolidation of stock exchanges in Central and Eastern Europe, which had often been discussed prior to the pandemic, was unlikely. The Murapol board member explained that the countries of our region treat stock exchanges as heirloom, which is very difficult to get rid of.

Lukas Bonko, in turn, pointed out that local stock exchanges may cooperate with one another in such areas as technology, but they are unlikely to merge. - Investors prefer to invest in local companies through local brokers - argued the president of the Bratislava stock exchange.