International Capital Markets Conference 2015

Building Regional Capital Markets

Session 1: Capital Market Integration: International Experiences

Adam Maciejewski

Bangkok, Thailand

November 30 2015

LESSONS LEARNED

You need

VISION needs

LEADER

HAVE DREAMS

MAKE THEM POSSIBLE

NO FEAR

ACT

TAKE RISK but

MANAGE IT

BE ANTIFRAGILE

Nassim Nicholas Taleb

„Antifragile: Things That Gain from Disorder”

INTUITION

COOPERATE

TRUST

POLAND

Central European

perspective

24,1%

13,5%

5,0%

8,0%

6,5%

2,3%

4,1%

4,0%

3,9%

2,4%

0,2%

-0,1% -2,2%

-2,8%

-3,2%

-4,0%

-5,0%

-5,2%

-5,2%

-7,4%

-8,9%

-10,6%

-25,8%

-4,0%

Poland:

ca. 36% of total GDP of 13

EU Members States that

joined after 2004.

The only EU country that

had a positive growth rate

during the recent crisis

Budgetary deficit and public

debt to GDP ratio are

trending downwards

Source: Eurostat

Cummulative

GDP growth

2007-2014…

15

... growing faster then other CEE economies…

…and the trend continues its upward climb

Poland is the 8th largest economy in the EU...

... gradually converging to its Developed Markets peers

2014 2015e 2016e 2017e

Real GDP (%yoy) 3,3% 3,5% 3,6% 3,5%

Nominal GDP (USDbn) IMF Forecast 546,6 491,2 517,0 550,8

GDP per capita (PPP USD) IMF Forecast 25 105 26 210 27 530 29 100

Household consumption (real, %yoy) 3,0% 3,4% 3,3% 3,3%

Consumer prices (avg, %yoy) 0,0% -0,7% 1,5% 2,0%

Unemployment rate (avg%) 9,0% 10,6% 9,6% 9,2%

Export of goods (%yoy) 5,7% 7,2% 6,5% 5,1%

Import of goods (%yoy) 9,1% 7,5% 7,0% 5,9%

Economic forecasts at a glance

Source : Bloomberg market consensus forecasts as of 8/09/15

3 860

2 945 2 847

2 148

1 407

866

570 547 535 500 437 246 238 230 206 200 137 57

89%

129% 136% 144% 148%

160% 162% 169% 170% 187%

221% 228% 245%

0%

5%

10%

15%

20%

25%

0% 20% 40% 60% 80% 100% 120% 140%

IMF Fore

cast

2015-2

020

Actual 2000-2014

Note: Nominal GDP as of 2014, USDbn Source: World Bank

Note: Cumulative GDP growth 1991-2013 Source: Ministry of Finance

Note: Forecasts by IMF, Thompson Reuters, cumulative GDP growth rates

Macroeconomic indicators look strong

Good situation on the labour market supports consumption

PMI readings have been volatile but show an upward trend

Unemployment rate close to its historical minimum

Stable growth in real wage

Flat trade balance is expected in 2015

Consumer confidence has recovered significantly

987

0

200

400

600

800

1000

1200

54,5

42

44

46

48

50

52

54

56

58

2012 2013 2014

-75

-58

-57 -56

-53

-39

-50

-70

-92

-40

-55

-65

-45

-8 -11

-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

10,1%

-1400

-1200

-1000

-800

-600

-400

-200

0

200

400

600

800

0%

5%

10%

15%

20%

25%

Unemployment change ('000) yoy (RHS) Unemployment rate (LHS)

0

1

2

3

4

5

6

7

8

9

95

96

97

98

99

100

101

102

103

2010 2011 2012 2013 2014 2015

Germany Poland Euro area (19 countries)

50

Note: PMI index for Poland Source: Bloomberg as of H1 015

Note: Consumption change yoy Source : Bloomberg as of H1 015

Note: Trade balance (PLNbn) Source : GUS (National Statistics Office)

Source : Bloomberg, RCB Note: Average monthly real wage (EUR) Source : Bloomberg as of H1 015

Note: Consumer Cofnidence Index Source : OECD Data

Poland enjoys a very stable financial environment

Cumulative Public Debt growth since 2008 (%)

Moody’s S&P Fitch

Poland A2 A- A-

Israel A1 A+ A

South Korea

Aa3 A+ AA-

Italy Baa2 BBB-u BBB+

Spain Baa2 BBB BBB+

Portugal Ba1 Bbu BB+

Public Debt/GDP (%)

Bond yield CDS

Ratings

EUR/PLN

174

136 133 124

105 97 97 94 91 88 84

79 77 75 74 68

58 50

99

67 65 61

56

47

35 32 32 29 29 28 28

24 21 18 17 15

12

5

2,7

2,1

0,7 0

2

4

6

8

10

12

14

Poland 10y yield Spain 10y yield

Germany 10y yield

92,0

104,1

167,8

24,2 32,0

44,1

58,7

73,7

96,6

112,8

0

20

40

60

80

100

120

140

160

180

6m 1yr 2yr 3yr 4yr 5yr 7yr 10yr

Korea Israel Spain

Italy Poland

4,23

3,4

3,6

3,8

4

4,2

4,4

4,6

2010 2011 2012 2013 2014 2015

Source: Bloomberg as of 09/2015 Source: Bloomberg as of 09/2015 Source: Bloomberg as of 09/2015

Source: Thompson Reuters as of 09/2015 Source: Thompson Reuters as of 09/2015 Source: Moody’s, S&P, Fitch as of 09/2015

Food & Livestoc

k 10,9% Chemica

ls 9,1%

Commodities 19,7%

Machines,

appliences

37,8%

Industrial

products 14,0%

Other 8,6%

Food & Livestock

7,5%

Chemicals 6,8%

Commodities

24,8%

Machines, appliences

34,2%

Industrial products 18,3%

Other 8,4%

18

…with euro zone still representing more than 50% of Polish exports, where Germany accounts for 25% and Russia only 6%

Exports have been a major contributor to GDP growth

Geographical and sector diversification of Polish exports is taking place…

Historically strong export correlation with Germany… … but little direct exposure to China

Germany

NL

IT

FR

BE SK

AT ES Others

Eurozon

e

28%

Other EU 14%

Rest of World 32%

Germany

NL

IT

FR

BE SK

AT ES Others Eurozone

27%

Other EU 23%

Rest of World 25%

Export share (2014) Import share (2014)

2014 Exports USDbn

2014 Export to China USDm

%of GDP % of Exports

Poland 194 2 236 0,4% 1,2%

Czech Rep. 157 2 035 1,0% 1,3%

Russia 498 38 100 3,1% 7,7%

Germany 1 733 99 684 2,6% 5,8%

-20

-10

0

10

20

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PL monthly exports change %yoy DE exports change %yoy DE GDP change %yoy

2000 2014

Source: GUS, Bloomberg end of 2014

Source: GUS Source: GUS

Nominal GDP by sector & funding

0

2

4

6

8

10

12

14

16

18

20

0

200

400

600

800

1000

1200

1400

1600

1800

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Agriculture Manufacturing Energy

Construction Trade Financial service

Public sector Other FDI EUR '0bn (LHS)

EU Funds EURbn (RHS)

Source: GUS, ewaluacja.gov.pl (EU), NBP(FDI)

Poland is going to receive EUR82bn

in co-funding from the EU in 2014-

2020, 19% more than the

EUR69bn in 2007-2013.

Approximately EUR28bn of this

amount is to be spent on

infrastructure, broadly the same as

in 2007-2013.

FDI stands at 1.5% of GDP and is

expected to increase in 2015e

(EUR 6.5 bn net) and 2016e (EUR

7 bn net).

EU funding to boost medium term potential

EURbn PLNbn

POLAND

Capital market

Public vs Private

22

Emerging from … Emerging from … Emerging from …

Emerging from … Emerging from …

Emerging from … Emerging from … Emerging from …

Emerging from … Emerging from …

Financial assets in Poland: +190% over 10 years

Source: National Bank of Poland

0%

5%

10%

15%

20%

25%

30%

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

Foreign investors (PLN bln)

Domestic investors (PLN bln)

Foreign investors share (%, right

hand scale)

Loan

s,

Bank

deposits,

Cash

46% Fixed

income

16%

Equit

ies 26%

Othe

r

12%

Financial assets structure

(as at 2014)

Polish equity market is catching up with DM

Market Cap ranking shows further growth opportunity

Poland is among smaller markets but with substantial growth potential

Company Market Cap

EURbn

Equivalent rank

GPW LSE DAX

Pekao 9,67 1 70 40

PGNiG 8,87 2 72 41

PZU 8,76 3 73 41

PGE 6,61 7 89 55

PKN Orlen 7,34 5 82 48

KGHM 3,68 10 148 74

Cyfrowy Polsat 3,41 11 157 76

LPP 3,36 12 160 76

OrangePL 2,24 14 198 88

Grupa Azoty 2,07 15 204 92

CCC 1,47 19 262 112

1%

2%

4%

8%

16%

32%

64%

128%

256%

1% 2% 4% 8% 16% 32% 64% 128%

Market

Cap

to

GD

P

"E

qu

itiz

ati

on

" (

20

14

)

Trading Velocity (2014)

Developed

Advanced Emerging

Frontier Emerging

Market Cap has grown by 37% since

2009

Free float has increased from 39% in

2009 to 48% currently

Turnover velocity in 2014 is at the level

of 31% vs Europe at 57%

Source: Thompson Reuters Source: Bloomberg as of 09/2015

WSE: One of the leading medium-sized exchanges in Europe

*Source: WSE paper „OPINION OF THE WARSAW STOCK EXCHANGE ON THE CAPITAL MARKETS UNION PROJECT”

0 100 200 300 400

MICEX/RTS

Oslo Børs

Warsaw …

Irish Stock …

CEESEG - …

Athens …

CEESEG - …

Bucharest …

CEESEG - …

CEESEG - …

Bulgarian …

Peer Exchanges Mkt

Cap (EUR bn, 2014)

0 100 200 300 400

MICEX/RTS

Borsa Istanbul

Oslo Børs

Warsaw …

Irish Stock …

CEESEG - …

Athens …

CEESEG - …

Bucharest …

CEESEG - …

CEESEG - …

Bulgarian …

Peer Exchanges

Equity Turnover (EUR bn, 2014)

no data

no data

17

35

3

2

0

0

0

0

0

0

0 10 20 30 40

MICEX/RTS

Borsa Istanbul

Oslo Børs

Warsaw …

Irish Stock …

CEESEG - …

Athens …

CEESEG - …

Bucharest …

CEESEG - …

CEESEG - …

Bulgarian …

Peer Exchanges

Number of IPOs (2014)

71%

33% 49%

36%

95% 79%

81%

72%

68%

72%

63%

70%

70%

56%

82%

76%

95% companies that are listed

at GPW have market cap lower

than 0.5 bn EUR

Polish mid-caps are significantly

diversified in terms of sectors

52 listings from non-Polish

companies

Source: FTSE

Warsaw is Europe’s SME listings hub

Main Market 422 domestic companies 52 foreign issuers

NewConnect 423 domestic companies 11 foreign issuers Catalyst 195 issuers (incl. State) 491 listed non-Treasury issues

Market cap: EUR 144 bn EUR 168 bn Market cap: EUR 1,3 bn Value of non-Treasury issues: EUR 14,6 bn

Strong flow of new companies to the market Issuers’ activity on GPW markets 1

Acquisition of issuers

On the radar: family companies, PE funds, CEE companies, state-owned companies and their subsidiaries

400 of 500 Polish companies with the highest revenue are not listed -> more than 100 may potentially be interested in listing on the Exchange

Capitalisation of domestic companies/GDP (%)

Significant European exchange by number of listed companies

203 230 255 284 351 374 379 400 426 438 450 471 474

24

84 107

185

351 429 445 431 434

0

150

300

450

600

750

900

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 H1 2015

Main Market NewConnect

1 As of the end of June 2015

77

63

36

72

61

15

46

28

0,2

1992 2002 2012 1992 2002 2012 1992 2002 2012

World European Union Poland

Source: GPW

Source: GPW Source: GPW

Source: GPW

Foreign companies / WSE regulated market

9 16 22 44 65 83

143

198 221 225 230 216 202

225 248

272

328 349 354 373 387 395 403 420 427 1

5 7

12

23 25 25

27 39 43 47

51 52

0

50

100

150

200

250

300

350

400

450

500

Domestic companies Foreign companies

Source: WSE

7 13

20 16 23

29 27 30 26

31

36 35

44 43

7 8

33

44

56 51

67 72

34 38

2008 2009 2010 2011 2012 2013 2014 H1 2015

Domestic shares Other assets

13 17

20 16

21

31 31 32

2008 2009 2010 2011 2012 2013 2014 H1 2015

Equity and Mixed funds AUM EUR bn

AUM of investment funds (EUR bn) AUM of Open Pension Funds – OFE (EUR bn)

Penios funds’ share in GPW free float Pension funds’ shares in turnover on GPW

40% 39%

44% 43% 46% 47% 48%

28% 33% 33% 36%

39% 43% 42%

2008 2009 2010 2011 2012 2013 2014

GPW free float OFE's share in free float

8,2 8,0 8,0 9,8

11,6

18,9

27,6

21,5 20,3

28,0 30,0

21,7

29,4

23,1

13,6%

16,7%

12,0%

8,8%

6,4% 5,8% 6,0% 6,7% 6,1%

6,8% 6,0% 5,8%

6,7% 5,6%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Strong domestic institutional investor base

Source: PFSA, GPW analysis

Source: PFSA Source: PFSA

Source: PFSA, GPW analysis

Strong economy & advanced stock exchange attract international investors

*Source: WSE paper „OPINION OF THE WARSAW STOCK EXCHANGE ON THE CAPITAL MARKETS UNION PROJECT”

GDP per capita vs. Size of the capital market

10-year cumulative GDP growth in Poland compared to the EU countries, Norway, Switzerland and Iceland

International investors provide liquidity and balanced shareholders’ base

Foreign

51%

Institutional

37%

Individuals

12%

Share in turnover on the GPW (1H 2015) Portfolio turnover ratio for selected investors on GPW

GPW stakeholders by market capitalisation of AUM

Year

Domestic Investors

International investors

Pension Funds Investment Funds Individual Investors

2008 28% 71% 62% 42%

2009 26% 92% 134% 50%

2010 21% 73% 89% 53%

2011 19% 80% 100% 57%

2012 13% 69% 89% 44%

2013 14% 75% 83% 48%

2014 9% 60% 62% 41%

International

Investors

42%

Pension Funds

22%

Government

and municipals

16%

Households

7%

Investment

funds

7%

Non-financial

corporates

5%

Others

1%

Source: National Bank of Poland

Source: GPW Source: GPW

Origin of GPW investors (Free float by geography)

Source: GPW

Easy access to trading

30 local + 26 GPW foreign members from 11 countries Most active on GPW past year (EOB+block trades)

Broker Market share (%)

Eq

uit

ies

1 Bank Handlowy (Citigroup) 11

2 DM PKO BP 10.7

3 Goldman Sachs International 7.6

4 DM BZ WBK (Santander) 6.6

5 IPOPEMA 6.2

6 Wood & Company 5.9

7 DB Securities (Deutsche Bank) 5.2

8 DM mBank (Commerzbank) 4.6

9 Merrill Lynch International 4.3

10 Credit Suisse Securities 4.3

Deriv

ati

ves

1 DM BOŚ 22.6

2 DM mBank (Commerzmbank) 17.8

3 DM BZ WBK (Santander) 9.5

4 Erste Securities 8

5 Noble Securities 5.9

6 DM PKO BP 5.4

7 CDM PEKAO 3.9

8 Raiffeisen Bank Polska 3.7

9 Alior BM 2.7

10 ING Securities 2.2

Credit Suisse, JP Morgan, Goldman Sachs, HSBC, Bank of America Merrill Lynch, Liquidnet Europe, UBS, Wedbush Europe, Morgan Stanley

Raiffeisen Centrobank

IP Intercapital Markets

Renaissance Securities, Dragon Capital, SIB (Cyprus) Ltd.

Wood & Company, Cyrrus, Fio Banka

Societe Generale SA, BNP Paribas Arbitrage SNC

UniCredit Bank

Concorde Securities, Equilor Investment

ING Bank

Orion Securities

Source: GPW data

Remote brokers ad liquidity to the market

2009

2015F

0 10 20 30 40 50 60 70 80 90 100

WSE Electronic Order Book (EOB) equity trading, EUR bln

Domestic brokers Foreign (remote) brokers

*Source: WSE

FTSE Quality of markets criteria for Poland

Criteria Status of Poland

World Bank GNI Per Capita Rating, 2013 +

Market and Regulatory Environment

Formal stock market regulatory authorities actively monitor market (e.g., SEC, FSA, SFC) +

Fair and non-prejudicial treatment of minority shareholders +

Non or selective incidence of foreign ownership restrictions +

No objections or significant restrictions or penalties applied to the investment of capital or the repatriation of capital and income

+

Free and well-developed equity market +

Free and well-developed foreign exchange market +

Non or simple registration process for foreign investors +

Custody and Settlement

Settlement - Rare incidence of failed trades +

Custody-Sufficient competition to ensure high quality custodian services +

Clearing & settlement - T + 3 , T + 5 for Frontier +

Stock Lending is permitted +

Settlement - Free delivery available +

Custody - Omnibus account facilities available to international investors Restricted

Dealing Landscape

Brokerage - Sufficient competition to ensure high quality broker services +

Liquidity - Sufficient broad market liquidity to support sizeable global investment +

Transaction costs - implicit and explicit costs to be reasonable and competitive +

Short sales permitted +

Off-exchange transactions permitted +

Efficient trading mechanism +

Transparency - market depth information / visibility and timely trade reporting process +

Derivatives

Developed Derivatives Market +

Best in class IT infrastructure

35

Successfully implemented in April 2013

Trading system developed by NYSE Technologies

Trading technology - key data:

Number of messages/ second (trading day) 20,000

Number of trades/ day fully scalable

Number of messages with market data/ day fully scalable

Internal latency 0.15ms

Telecommunication providers e.g. SFTI, TNS, Orange, ATM (Linxtelecom), Exatel

Trading applications offered by global ISVs including Fidessa, Ullink, Sungard, ARQA, ORC, LIST, MetaQuotes, Ingalys, CQG

Global Market Data Vendors have access to the GPW market data stream

Provided on premises leased by GPW (in Warsaw) at a professional Data Centre developed and managed by a third party

Co-location service is available to: Exchange Members and their clients, Data Vendors and service providers

Universal Trading Platform (trading system)

Connectivity

Co-location services

Source: GPW

SERVING THE ECONOMY

SERVING THE CLIENTS

*

FINAL CONSIDERATIONS

I. CARE ABOUT LOCAL ECONOMY & DEMOGRAPHY

II.SUPPORT LOCAL COMPANIES

III.SUPPORT INNOVATION (eg corporate private ventures, crowdfunfing, support services for startups)

IV.CAPITAL MARKET - A TOOL SUPPORTING MORE RISKY BUSINESSES – CARE ABOUT CM

V. DO NOT FAVOUR PUBLIC/PRIVE MARKET – ONE IS MORE TRANSPARENT & DEMOCRATIC, THE OTHER ONE IS MORE EFFECTIVE

VI.BUILD RELIABILITY / BE PREDICTABLE (RULES & REGULATIONS, PROCEDURES, IT…)

38

CU in Poland

-41 + 40 º C