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10 Questions

with Jan Schiesser
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September 19th, 2007 issue

VLADIMÍR WEISS/THE PRAGUE POST
Atlantik's Chairman Jan Schiesser discusses the future of futures on the Prague Stock Exchange.
THE SCHIESSER FILE

Job title: Chairman, Atlantik FT
Age: 34
Nationality: Czech
Education: M.A. in Economics, Central European University; Ing. in Finance, Masaryk University

Over the past month, the world’s stock markets have experienced volatility stemming from the United State’s slowly evolving subprime crisis, which saw financial institutions invest, to their later chagrin, in bundles of mortgages granted to homebuyers with poor credit. Jan Schiesser of Atlantik FT, one of the country’s largest stockbrokers, talks to The Prague Post about the current state of the crisis, the lack of growth on the domestic stock market and the windfall that could come with pension reforms.
➊ Can anyone foresee what’s going to happen next in the subprime crisis?
Nobody expected such a problem to arise, and now it’s larger than anyone could imagine — no one can even say how big it is. Investors are nervous. No one knows how it will continue to affect the United States’ economy and the world financial system, especially if there is a credit crunch. The uncertainty makes investors take drastic steps. For example, last week we saw bad figures out of the U.S. labor market, which would normally trigger some sort of market correction, but not nearly as large as we saw.
➋ Why would institutions invest in these securities in the first place?
There is an excess of liquidity in the global financial system. Because investors have to put their cash somewhere, these U.S. subprime mortgages bundled together into securities were thought to be a good place to put money. Many institutions in the U.S. and Europe invested a lot into the segment. That’s caused the problems.
➌ Domestically, what kind of aftershocks have we seen?
It affected only two parts of the market. First, there were equities, where we saw the share prices of the most liquid companies like banks and ČEZ fall, and of course real estate companies. Second, the crown appreciated a little bit because it’s used for financing. Basically, investors borrow money in crowns because of the low exchange rate and then convert the crown to a currency they can invest somewhere else.
➍ Speaking of the local market, what impact will the recently passed public finance reforms have?
The reforms will only marginally improve the situation. When you buy a stock, there’s currently a six-month period you have to hold the equity before you can sell it without being taxed. We would have liked them to remove this requirement. It happened in Cyprus and the country saw retail investors become much more active.
So, the only improvement for investors is that your profits will not be taxed 19, 25, or 32 percent, but only 15 percent next year and 12.5 percent in 2009. This could lead investors to sell their stocks and make a profit sooner than they would now.
➎ Could a reform of the pension system, which is currently under discussion by the government, significantly change conditions?
The pension reforms will, once they happen, have a fundamental influence on the equity market. The example is Poland, where they had pension reforms and now the pension funds are the biggest investors in equities in the Polish market. That’s also a reason you see so many initial public offerings [IPOs] in Poland, because there is demand from the pension funds. These reforms are the fundamental prerequisite for a healthy equity market, and the lack of reform is the local market’s biggest problem.
➏ Atlantik reported a large jump in retail clients and profits so far this year. Where is this growth coming from?
Our client base is getting bigger because people have more knowledge of the equity market and are looking for ways to make higher profits than they can get with bonds and money markets. Despite these new investors, this year our volumes on the Prague Stock Exchange are flat. But volumes are up more than double in Hungary and especially in Poland, because Poland has many more investment opportunities. In Prague, you can invest in 10 stocks — it’s a small playing field. In Poland, you have 300-plus issues.
➐ The used-car company AAA Auto is planning an IPO in Prague this month. Are you expecting any other IPOs this year?
I expect the coal company OKD will have an IPO this year. There were talks about two or three other IPOs coming from the real estate sector, but, given the current situation, I don’t expect these guys to make it. It’d be very difficult for them on the current market.
➑ Last year, the Prague Stock Exchange launched futures trading, which allows investors to make money by betting against the future performance of stocks. How widely has it been accepted?
From the beginning, we were cautious. Our expectations were much more conservative than the exchange. The biggest issue with futures is that it’s a new product and it takes a long time before investors become comfortable with it. Only then will they start to use it.
Also, the spread between “bid” and “ask” is quite large. In other words, you need a significant market move to make your futures profitable. As a result, people don’t use them. Foreign investors ignore futures completely and there’s no interest from London or other European financial centers. So it’s only about domestic investors, and these investors use so-called margin trading.
➒ The use of margin trading, which essentially uses broker-granted loans to amplify investing power, has been dying out on other exchanges. Do you expect local investors to continue using it?
I think so. It’s how the market developed. If you look abroad, there are some markets that don’t have margins, and there are some markets, like here, where futures aren’t successful. It will take a long time — years — before futures become a significant part of investing strategies. For example, in Poland it took three or four years.
➓ Speaking of Poland, do you expect any future consolidation of Central Europe’s stock exchanges?
The Prague Stock Exchange’s shareholders, which are the country’s biggest banks, don’t see any good reason for consolidation. At the same time, Austrian banks — which are significant players here — would like to see consolidation. There is already a close relationship between Vienna and Budapest, and it would be much easier to merge with Prague than Warsaw, since Poland is the biggest regional market.
But I don’t see economic reasons for it. The markets are still quite different. It’s not like Scandinavia, where the markets have developed in the same way for a long time. Also, the Prague Stock Exchange is quite profitable, so there’s no reason to merge out of financial need.
Want your manager to answer our 10 Questions? Send a message to Paul Voosen at pvoosen@praguepost.com


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