Investment market recovery

After a dormant 2009, the Czech investment market is beginning to pick up, but the strength and speed of the recovery will depend on the government's success in lowering the budget deficit through austerity measures, analysts say.

Shares on the Prague Stock Exchange (PSE) have fallen in recent weeks, with shares in energy company ČEZ falling to an 18-month low of 777 Kč per share Oct. 14 on speculation that government measures to secure lowered energy costs next year will hurt the company. But overall, the investment market is beginning to show signs of revival, according to Petr Sklenář, analyst at Atlantik FT.

"Previous to the global recession, the Czech economy grew 4 percent to 7 percent annually, a growth that was driven by an increase in investment. No one really expects the economy to grow much in the coming years. A more realistic expectation is 2 percent to 3 percent growth each year. I expect there to be steady growth in investment but not as dramatic as in previous years," Sklenář said.

David Marek, chief economist at Patria Finance, shared Sklenář's cautious optimism, saying investment is less risky now than it has been in at least a year.

"I expect it will improve further still," he said.

According to Marek, the government's success in lowering the budget deficit will dictate the speed of the economy's recovery and will be the key to a long-term decrease in investment volatility.

"If the government succeeds in lowering the fiscal deficit, then risk premiums - which are included in the prices of Czech assets - should be lower, and bonds as well as equities will be more attractive. When that happens, the Czech economy will be seen as more stable for FDI and financial investments, as well," he said.

A package of austerity measures was passed by the Senate Nov. 12 after a legislative emergency was declared following weeks of wrangling. The package still must be signed into law by President Václav Klaus but is likely to go into effect Jan. 1, 2011.

Regardless of when the austerity measures are passed, however, Marek suggested investing in consumer staples like food and pharmaceuticals, which are less exposed to business cycles, "and therefore shouldn't be as sensitive to downward economic swings as the car industry, for example."

Commodity investments, which are usually considered risky because of their sensitivity to fluctuations in the economy, enjoyed something of a resurgence last year, especially personal investment in gold.

Komerční banka began offering gold investment packages to wealthy customers in March 2010, the first Czech bank to do so. The precious metal is often seen as more secure than other commodity investments, especially in the past year, as gold prices peaked at an all time high of more than 17,000 Kč per ounce in February 2010, greatly boosting interest in gold investments.

But Marek cautioned against the allure of gold, calling it "an unusually high-risk investment."

"If the market changes quickly, then commodities can react even more drastically than equities. I don't understand why gold is priced as high as it is right now or why it is so attractive as an investment," he said.

A recent addition to the PSE shows that the talk of investment recovery is more than mere speculation. The PSE listed gambling company Fortuna Entertainment Group NV Oct. 22, the first IPO on the market since May 2008. The company said that it had raised 1.9 billion Kč on a sale of 18.2 million shares, or 35 percent of the company.

With the addition of Fortuna, the number of companies listed on the PSE rises to 27, still a fraction of the 151 companies listed there a decade ago but nonetheless indicative of a positive upward trend that did not go unnoticed by analysts.

Dušan Jilčík, a stock trader at Cyrrus, was pleased to see what he called "new action" on the PSE, saying, "Czech investors can be grateful for each new share and the interruption of the lethargy that has agonized the Prague Stock Exchange."

Stephan Delbos can be reached at
sdelbos@praguepost.com