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Prague bourse falls amid turmoil

Fears of recession in U.S. force exchanges down worldwide

By Michael Heitmann
Staff Writer, The Prague Post
January 23rd, 2008 issue

At times last year it seemed as if the Prague Stock Exchange (BCPP) was immune to the growing economic fears coming out of the United States.
No more. The BCPP has plummeted since the start of the year, its main index closing at 1,489.6 points Jan. 21, a year-on-year loss of 10.69 percent. Already, the PX Index has lost all of the gains it made in 2007.
The Prague bourse has been swept along in the global plunge of capital markets, analysts say. Major stock markets worldwide began recording steep sell-offs Jan. 21, caused by fears of an upcoming U.S. recession.
“We plunged along with the global trend,” even though Czech companies’ financial results are solid, said Aleš Michl, an analyst for Raiffeisenbank. Stock markets are going helter-skelter “and we are no exception to the rule,” he added.
A market like the Prague bourse is naturally exposed to the variations in more robust and established markets, said Marek Hatlapatka of the brokerage Cyrrus.
“The Czech market has to be considered as an emerging market, which foreign investors leave whenever it comes to a sell-off,” he said. “This then causes panic among the local small-scale investors.”
While the BCPP estimates the number of small-scale investors at 30,000, only two companies — the energy giant ČEZ and Erste Bank, owner of the bank Česká spořitelna — make up 50 percent of the PX Index. Nothing is wrong about this, Michl said, since it is a small market.
The BCPP resisted the global downward trend earlier because ČEZ’s stock was overperforming, thanks to rising electricity prices and the utility buying back its own shares, said David Brzek, a stockbroker at Fio. But, when demand for ČEZ stock receded at the start of this year, the index belatedly began a downward slide.
“The key issue is whether a recession will hit America or not,” Michl said. “If not, the trend will reverse itself after half a year. Those who don’t believe in an upcoming U.S. recession should use the fall of the stock market for cheaper purchases.”
Brzek warned against such enthusiasm: “There’s only a slight chance that the Czech stock market will in the course of 2008 regain its record value,” he said.
In general, the bourse’s importance in the overall financial system should not be overestimated.
“On the one hand, Czechs hold an unnecessarily large amount of their savings in bank accounts and are only slowly familiarizing themselves with new investment opportunities. On the other hand, this allows the banks to provide Czech companies with the necessary capital in sufficient amounts,” Hatlapatka said.
Since it’s easier for Czech companies to get credit than in neighboring Poland, there is little incentive for going public.

Michael Heitmann can be reached at mheitmann@praguepost.com


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