WSE will encourage institutional investors to buy Polish equities - Fund Forum

Bardzilowski pointed out that over the past decade we have seen a significant decline in the role of the capital market in the Polish economy.

"Institutional investors, including mutual and pension funds, are the key to growth. For us, it is important that funds go to long-term funds investing in our domestic market. OFE funds still account for nearly 45 percent of the total free float. Mutual funds, whose assets are significantly larger than OFEs, invest only about 11 percent of their assets in Warsaw. I hope that this ratio will increase," WSE operator's CEO said.

"We will be doing a lot to encourage investment funds to increase their exposure to domestic equities. A ray of hope are PPK, which are growing very significantly and already account for around 2 percent of the free-float, and this scale is growing rapidly," he added.

Poland's employer-sponsored pension plans PPK's assets exceeded PLN 27 billion (EUR 6.3 bln) at the end of the second quarter.

"Participation is also growing, it should soon reach 50 percent of those eligible, that's more than 4 million people who are already saving through PPK at the moment," Tomasz Bardzilowski said.

The WSE operator's CEO estimates that 2024 will be the first year in which the balance of OFE and PPK inflows combined will be positive for the stock exchange and this will be a milestone in its development.

"For the first time, net institutional investor money will be on the demand side rather than the supply side of the stock market. I hope this will attract other investors and issuers," Bardzilowski said.

"We are counting on individual investors, attracting them is our main task. Our opportunity is that household funds that are on bank deposits can flow into funds and into the capital market. These funds amount to PLN 2.5 trillion, more than half of which is in cash and bank accounts. This is one of the highest ratios in the European Union," he added.

The average share of cash in savings in the European Union is 34 percent. In Poland, the ratio is even higher, reaching 51 percent.

"The EU says it is richer in terms of savings than the United States. In our case, this indicator is even higher. If we were to go down from 51 percent at the end of last year to 34 percent of the European average, this would be funds in the region of PLN 520 billion, which is more than the entire mutual funds and OFE industry combined is worth now. This is worth fighting for," Bardzilowski said.

"I hope that with interest rates falling, investors will increasingly look for products and opportunities to achieve higher rates of return," he added.

In CEO Bardzilowski's view, the key is to find ways to stimulate the capital market.

"In particular, it is important to increase inflows to institutional investors. It is institutions such as OFEs and Polish mutual funds that do the first liquidity, then individual investors come in," he assessed.

According to Tomasz Bardzilowski, it is necessary to focus on long-term savings invested in the Polish market, strengthening the ecosystem of investment funds and the growth of the local venture capital and private equity market. For individual investors, in turn, financial education, investment culture and tax incentives are important.

Larger inflows to the stock market mean that valuations will rise, and the cost of capital will fall. A lower cost of capital will attract more listed issuers for whom access to capital is important.

If we have this, there will also be an influx of funds from foreign investors for whom liquidity, a stable political environment and market size are important.

"Then this market's driving wheel will spin faster and faster," the WSE operator's CEO assessed.

Bardzilowski added that it is also important to improve corporate governance and ESG standards.

"This is where there is a lot of room for improvement when it comes to large WIG20 companies and companies with Treasury shares. The weakness of these standards is one of the main factors why the stock market has performed worse in recent years. This can be seen in the valuation of the Polish stock market through the prism of the P/E ratio compared to global markets," he said.

"Just 10 years ago it was the Polish stock market that was valued at a premium, now the discount reaches almost 50 percent. If we were able to reach the level of world valuations, it would mean a 120 percent increase in the WIG," he added.

In Bardzilowski's opinion, it is worth looking at the Warsaw Stock Exchange through the prism of what rates of return are offered by medium and small companies.

"We will soon want to come out with an educational and information campaign to show the rates of return that are achievable on our stock exchange," he announced.

"The WIG20 for 10 years brought a return of zero, including dividends of 30 percent; the WIG index beats inflation for the last 10 years but does not beat housing prices, but the sWIG and MWIG indices are well over 100 percent return. The market is volatile, but this rate of return reflects that smaller and medium-sized companies are the salt of the Polish economy," Bardzilowski added.

pr/ ao/