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Brokered returns

Firms sign record number of small investors in face of market turmoil

By Victor Velek
Staff Writer, The Prague Post
February 13th, 2008 issue

COURTESY PHOTO
Cyrrus' Hatlapatka says falling stock prices have lured in more small investors.
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Thickening wallets and growing financial savvy are turning more and more Czechs from savers into investors.
Despite the global market turmoil triggered by the U.S. subprime crisis and the recent fall of the Prague Stock Exchange, the ranks of individual investors in the Czech Republic have been steadily swelling. Brokerages surveyed by The Prague Post pulled in record numbers of new clients in 2007, and this year seems to be no different.
Last year, Patria Direct signed about 2,000 new clients, up 26 percent compared with 2006. Cyrrus recorded a similar increase, while Česká spořitelna’s Brokerjet drew 3,500 new individual investors, increasing the number of clients it had registered by the end of 2006 more than 50 percent.
The Fio brokerage, which saw its parent company take over the off-exchange RM-Systém in 2006, almost doubled its number of clients last year, winning over 5,300 new customers.
“The growing interest in securities trading stems from the prospering economy and low volumes of invested money in past years,” said Marek Hatlapatka, an analyst at Cyrrus.
There are more households that have spare money for long-term investments. The longer the investment, the less attractive traditional bank deposits become, as securities can bring much higher returns, according to Hatlapatka.
This growth comes as the Prague Stock Exchange plummeted last month over U.S. recession fears, after resisting the global downward trend during 2007. The bourse has since stabilized but hasn’t shown signs of recovery, with its main index closing at 1,493.2 points Feb. 11, down 11 percent year on year.
Paradoxically, this plunge has increased the flow of new investors, brokerages said.
“The low prices are attracting a number of newcomers. In January alone, we registered 1,020 new clients,” said Jan Sochor, head of Fio’s brokerage division. “We expect a further increase in new investors.”
“In the short term, potential investors might be overcautious. But the fall of stock prices has drawn clients ready to do more risky trading,” Hatlapatka said. Capital markets are volatile by nature and the January fall was not so extreme as to turn locals from stock trading, he added.
Any further plunges in the Prague bourse could begin discouraging both potential and existing traders, some brokers warned. For now cheaper stocks may mean more investment, but further significant falls could lead to a “sharp decline in interest,” said Michal Tobiáš of Brokerjet.
Capital wary
Another reason the number of small investors is rising may be that it had nowhere to go but up, as many remained wary of capital markets.
“We’re starting off from a low base, which accounts for the rapid year-on-year growth,” Hatlapatka said. “In the past, even well-off people stayed out of the stock exchange. Only over the past couple of years have they shown more trust in securities trading.”  
Many of these fears stemmed from the “Wild East” days of coupon privatization in the 1990s. Trust in the capital markets has grown as that legacy has faded away, said Martin Kodýdek, sales director at Patria Direct.
The local investor community is still relatively small but has been swelling for some time, well on its way to catching up to Western Europe, Kodýdek added.
Apart from people’s growing savings and financial literacy, the expansion was spurred by the RM-Systém merger and education seminars, Sochor said.
“We’ve recorded a significant growth of interest in these seminars,” he said. “Last year, we organized more than 100 of them both for new and advanced investors.”
Seminars are only one way to draw attention to equities trading. Some brokerages are using sophisticated promotion strategies like risk-free investment games with lucrative prizes.
A couple of months ago, for example, the Czech branch of Poland’s X-Trade Brokers awarded a Porsche sports car to the most successful speculator in its stock-trading simulation.
The competition, which drew more than 28,000 people, revealed that securities trading appeals especially to younger people around 30 years old, and it remains a male-dominated field. Surprisingly, though, large numbers of the contest’s participants, including the winner himself, came from smaller towns and villages.

Victor Velek can be reached at vvelek@praguepost.com


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