IMPORTANCE OF CAPITAL MARKETS RICHÁRD VÉGH CEO and Chairman of Budapest Stock Exchange IOSCO ANNUAL CONFERENCE Budapest, May 10, 2018 SUCCESSFUL AND DEVELOPED COUNTRIES HAVE STRONG CAPITAL MARKET 70 CH NOR 60 Reduces the cost of long-term funding. USD) AUT 50 DK FIN SWE Cost-effective way 40 ISR UK of transferring capital thousand KOR between industries. 30 HUN POL Supports 20 CHN innovation. IDN 10 GDP/CAPITA ( GDP/CAPITA A more stable and IND resilient monetary 0 0% 50% 100% 150% 200% 250% system. MARKET CAPITALIZATION/GDP Source: OECD (2016), World Bank (2016) 2 STRONG AND IMPROVING ECONOMY 1 YEAR CDS CURVE PERFORMANCE OF INDICES BUMIX 200 300% +203% BUX 260% CETOP BUX 150 BUMIX +133% 220% DJ STOXX 600 100 DAX 180% 140% 50 100% 0 60% 2013 2018 2015 2018 DEBT TO GDP (%) GDP GROWTH (%) CPI (%) UNEMPLOYMENT RATE (%) 76,6 76,7 76,0 4,3 6,2 73,6 4,0 4,1 4,0 2,9 3,0 2,5 5,1 3,2 2,4 4,2 MAIN MAIN 3,6 2,2 3,1 2,8 INDICATORS 0,9 0,5 14 15 16 17 15 16 17 18* 19* 20* 15 16 17 18* 19* 20* 15 16 17 18* 19* 20* 3 *Forecast Source: Bloomberg, MNB, AKK, MND STRONG GROWTH IN HOUSEHOLD WEALTH – BUT CONSERVATIVE SAVING STRUCTURE Institutional side Retail side ASSETS IN HUNGARIAN MUTUAL BREAKDOWN OF HUNGARIAN FUNDS 2018 Q1 HOUSEHOLD’S WEALTH (billion HUF) Other investment 18% (4% domestic, Shares in Stock Exchanges 14% foreign) 1,6% 48 000 Property Bank deposit 45 000 42 000 Stock T-bill 9266 39 000 billion HUF 36 000 Corp. Bond, mortgage 33 000 Government bond 30 000 2014 2017 4 Source: BAMOSZ, MNB CAPITAL MARKET UNION INITIATIVE – COMMON GOALS WITH BSE The creation of a more homogeneous capital Bank landing vs corporate bonds & equity market across the EU to achieve better BANK LENDING, CORPORATE BONDS & economic growth and shock resilience. STOCMARKETS (EX-FINANCIALS) 2015 (as % of GDP) Support capital market financing with special focus on SMEs. Corporate bonds Foster retail investment (e.g. Private Pension). Bank lending Facilitating cross-border investment. Stock market Strengthening the banking capacity (Securitization). Financing innovation (Pan European VC fund). Promote infrastructure investments. Limited actual steps achieved but a strong foundation for future achievements. CMU 2.0 tailored goals based on past 2.5 years’ experiences 31 11 112 18 23 78 12 36 56 10 39 51 (e.g.: Supervision reform). US UK EU EU27 5 Source: ECB, Federal Reserve, FTSE Russell, IMF NEW STRATEGIC GOAL OF BSE BSE set up a 4 5 new 5 year strategy 2 3 in order to: 1 Build up local ecosystem Create new services Help SMEs access to capital market make all services available for them By enhancing the two main pillars SUPPLY DEMAND 6 ACTIONS TAKEN SUPPLY DEMAND National Stock Exchange 1 Development Fund. Lunch a new mentoring program. 2 1 Set up a new MTF platform for SMEs (Xtend). ELITE program – financial 3 education for companies. Introducing REITS to the BET Akadémia – a series of lecture in Hungarian market. 2 the most interesting financial topics. 4 BSE market development 3 Establishing program for companies 5 Budapest Institute with small- and medium of Banking (BIB) – capitalization started in multiple subject 2018 – analysis and courses. market making. 7 CMU – SUPPORTING LOCAL MARKETS BY CREATING SME FUNDS The dominance of SMEs in the EU11 economy The contribution to value-added 19 21 19 21 by size of firm % 29 43 41 46 V4 EU28 Balkan Baltic Micro SME 35 36 40 50 Large Source: Eurostat CMU 2.0 identified the need for tailored approach towards smaller EU capital markets already such as in CEE e.g: Vienna initiative – Structural Reform Support Program. Financing of SMEs is crucial all over the EU including Hungary. Dedicated SME funds supported by policy and finance could add real value to the development of local markets by creating substantial demand. 8 Thank you for your attention! RICHÁRD VÉGH CEO and Chairman of BSE.