Marek DIETL: An investment in knowledge pays the best interest

An investment in knowledge pays the best interest

Photo of Marek DIETL

Marek DIETL

CEO of Warsaw Stock Exchange (GPW)

Ryc. Fabien CLAIREFOND

other articles by this author

.The aphorism attributed to Benjamin Franklin may be almost three centuries old, but it has lost none of its relevance and has become even more apt with the passage of time. In a world of rapidly changing financial markets, coupled with global geopolitical and economic challenges, those who have access to valuable and verified information will inevitably have an advantage. With this in mind, the Warsaw Stock Exchange and the World Federation of Exchanges (WFE) launched the Knowledge Exchange Forum. Our aim was to bring together an international group of prominent capital market experts to analyse the latest trends and discuss the innovations and solutions that are driving today’s investment trends.

The global economy, challenged by low growth and high inflation, is now entering a new phase that promises a turnaround in financial markets. With forecasts pointing to a modest recovery next year, investors are looking at the potential impact of monetary easing and the return of inflation to central bank targets by 2025. However, they still have to factor in the uncertainty surrounding the current global conflicts and their consequences for the global economy. From this perspective, questions about the stability and direction of global markets take on a new importance.

In spite of the war on our eastern border, the Warsaw Stock Exchange has been one of the five most stable stock exchanges in Europe for many years. We stand out among emerging markets for the high proportion of retail investors, a trend that makes us optimistic about future capital market changes. In fact, we are on the verge of a total revolution, initiated by cryptocurrency exchanges, that will give retail investors direct access to the stock markets. We are watching with fascination as the blockchain technology ushers in a new stock market reality without brokers, custody systems or clearing houses. Part of this revolution will be the changes in EU legislation that will raise the crowdfunding limit to €5 million, making it easier for companies to go public, and the tokenisation of non-financial assets.

New knowledge exchange platform

.Given the dynamic evolution of the financial world, the WSE has become much more than just a place to invest and build up savings. It is now a versatile platform offering innovative technological solutions for financial operators. On the one hand, the WSE Group facilitates trading in various assets, and on the other it provides investors with up-to-date and accurate data in the form of cyclical, uniformly structured reports on listed companies. The WSE is also committed to developing the financial market by setting up a crowdfunding platform that will help investors to finance specific projects. As for issuers, we support them in their ESG reporting, recognising how important it is for investors today to know whether a company is meeting sustainable development goals. But we also want to go beyond the purely market functions and run numerous educational projects to improve financial literacy in Poland.

Our latest educational initiative, enshrined in the WSE Group Strategy for 2023-2027, is the Knowledge Exchange Forum. The aim is to hold a series of meetings to inspire and educate market players. We hope that the Forum will grow to become an important venue for the exchange of ideas, experiences and best practices, offering diverse perspectives from experts around the world. The project was launched at our initiative in collaboration with the World Federation of Exchanges. As we wanted the Forum to be inclusive, we established it together with institutions and organisations that ensure the broadest possible representation of financial market participants. The list of Knowledge Exchange Forum partners includes: the Ministry of Finance, the Financial Supervision Authority, representatives of WSE clients, the Association of Retail Investors, the Chamber of Brokerage Houses, the Chamber of Fund and Asset Managers and the Polish Association of Listed Companies.

Exchange-Traded Funds: a window on the world

.The Forum held its inaugural session in Warsaw on 4 December. The panel for this first meeting was made up of recognised capital market experts: Richard Metcalfe, Head of Regulatory Affairs at the World Federation of Exchanges, Prof. Markku Kaustia from the Faculty of Finance at Aalto University and Linda Zeilina-Cross, founder and president of the International Sustainable Finance Centre (ISFC).

In his presentation entitled „Exchange Traded Fund – a Window On The World”, Richard Metcalfe shed light on the dynamic nature of the ETF market. EFTs are innovative financial vehicles that have become popular as they provide easy access to a variety of assets classes, including equities, bonds and other investment instruments such as those based on financial leverage. The ease of diversifying an investment portfolio is key to minimising risk, which makes ETFs a flexible tool for those who want to invest on the stock market but do not necessarily have advanced financial expertise.

Today, the global value of ETF assets amounts to $10 trillion, which is twelve times the GDP of Poland. According to  Metcalfe, ETFs are so popular because they have opened a window on the world for small investors. They offer new investment opportunities while simplifying the investment process itself. Importantly, the EFT market is growing organically so it is highly likely that this dynamic trend will continue.

What is (not) good for investing

.In his talk „Personal values in household stock market participation”, Prof. Markku Kaustia presented the results of studies on the impact of personal attitudes and values on household investment decisions. Listing the most serious mistakes made by retail investors, he cited a lack of diversification and a failure to time the market. However, he said that the biggest mistake made by households was underinvestment in stock market products. Unfortunately, Poland compares poorly with other developed markets in this respect as only 10 per cent of the Poles own shares in listed companies. We lag far behind Anglo-Saxon countries (25 per cent in the USA and Canada, almost 30 per cent in the UK, and 40 per cent in Australia) or Scandinavia (around 25 per cent on average). The data highlights the importance of financial education and raising awareness of how capital markets work.

According to Prof. Kaustii, interest in the stock market can potentially be generated by three main groups of factors: institutional (31 per cent of the impact), behavioral (sociability, religious or political affiliation) (20 per cent) and traditional (wealth, education and willingness to take risk) (48 per cent). In other words, while the decision to enter the capital market is primarily a function of personal wealth, it is also driven by the values held by the investor. They will also have an impact on investment portfolios – issuers should be interested in the increasing emphasis investors are placing on aligning the values represented by financial instruments with consumer preferences. This is crucial in the context of the growing importance of ESG factors. More and more people are asking what social and environmental goals are being “funded” by the money they have invested.

It’s not only about finance

.The importance of sustainable finance for the ETF market was discussed by  Linda Zeilina-Cross of the ISFC. Sustainable finance is an approach that balances profit with social and environmental benefits in business, investment and lending decisions.  During her presentation, entitled „The rise and rise of ETFs & ESG”, Zeilina-Cross mentioned that although ESG (Environmental, Social and Governance) factors have become significantly more important to investors, there is still a major problem with the lack of consistent reporting standards in this area. She said that companies are mainly assessed on their energy risks, without taking into account their global impact on the environment, including the people they employ and local communities.

According to the president of the International Sustainable Finance Centre, if it were possible to establish mandatory guidelines and uniform ESG reporting rules, we would be promoting those companies that are genuinely trying to avoid negative environmental impacts. Zeilina-Cross believes that only after such changes are made will countries be able to meet the climate change targets set by the EU and the Paris Agreement.

The introduction of clearer ESG reporting standards will be an opportunity to attract more funding for new products tailored to investor preferences, both in the Polish and CEE markets.

WSE doesn’t slow down

.The Knowledge Exchange Forum is a new, ambitious project included in the WSE strategic vision for 2023-2027. But the Warsaw Stock Exchange doesn’t just discuss the global financial trends. We are also actively responding to these trends, trying to be at the forefront of global stock exchange changes. Our priority is to thoroughly modernise and accelerate our IT systems. We are introducing state-of-the-art tools, automating our processes and upgrading our management solutions in order to continuously improve the environment that is the beating heart of the Polish capital market. The activation of GPW WATS, our own transaction processing system, will help us to coordinate our work and serve our clients even more effectively.

The Warsaw Stock Exchange is attracting strong interest from global investors and local issuers. This reflects not only our well-established position in the market, but also the dynamic growth of the WSE, an institution that is constantly adapting to changing investor expectations. By introducing innovative solutions such as trading in tokenised non-financial assets, the WSE is becoming a go-to place for experienced investors and those just starting out in the challenging capital market. Our aim is not only to adapt to modern standards, but also to stay ahead of market expectations.

Marek Dietl

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