A spike in risk aversion and tighter global liquidity will not derail efforts by central and eastern Europe’s largest bourse to expand this year – a development that would prove a major fillip to eastern European corporates -Warsaw Stock Exchange chief executive Ludwik Sobolewski has said.
But analysts remain divided on the extent of investor appetite for the region’s stocks.
The exchange chief told Emerging Markets in a telephone interview this weekend that despite heightened volatility in bourses across region, the WSE would charge ahead with its bid to lure regional listings, following the exchange’s recent successes.
“We had a few very successful and large transactions on the primary market over the last few weeks. These are very good signs,” he tells Emerging Markets.
On May 6, Czech coal mining company New World Resources priced Europe’s largest IPO this year when it listed on the London Stock Exchange, WSE and the Prague Stock Exchange, raising around $2.2 billion. Polish satellite television operator Cyfrowy Polsat also successfully braved volatile market conditions at the end of April launching a $375 million IPO on the WSE.
Although the exchange was hit hard in January in tandem with global stock market slump, Sobolewski argued that these recent listings highlight clear liquid demand for Polish equities and will encourage new issuers going forward.
But others disagree: Gerhard Winzer, head of research at Raiffeisen International said that portfolio investors will still tread with caution and stick their cash in safer assets such as bonds over the coming months.
“The risk-return relationship for equities appears to be too unattractive over the short term,” he said.
Since 2004, annual share trading turnover has increased 4-fold to Z480 billion by 2007, while there were 175 new listings over the same period. This growth has been propelled by the expansion of large Polish pension funds that can only invest 5% of their money abroad, as well as by international investment.
Sobolewski nevertheless acknowledged the high penetration of foreign investors could heighten the exchange’s volatility, despite the strong domestic bid.
“A large part of our investors are highly vulnerable to pessimistic news and forecasts, even if they hardly apply to the economic situation in our region,” he said. “Going forward, we still are subject to the climate of sustainable uncertainty.”
Some market participants have criticized the WSE’s expansion efforts following the launch of New Connect, an alternative market for small companies, in August 2007. One equity capital market banker in London said the exchange lists too many small and new companies and must concentrate on attracting larger institutions to become a truly global financial centre.
“If it wants to become a big player it has to concentrate on attracting big players. This will provide secondary market liquidity and attract more foreign investors.”
But Sobolewski disagreed: “A modern stock exchange should attract companies from small ones to big ones. If we attract smaller companies, it does not mean that it is at the expense of larger ones.”
He added that over the next few months, New Connect would “welcome quite soon our first foreign companies. They will be small, but this will be an important step towards the internationalization of our exchange.”
Nevertheless, the stock market should see large companies listed this year as the new free-market orientated administration led by Prime Minister Donald Tusk is expected to jumpstart a privatization programme.