Czech Industry Is Recovering, and How About the Stock Market?

In late February 2020, the Prague Stock Exchange had the worst slump in the record since the June 2016, Brexit referendum. The PX index declined by 2.81 percent on February 26, its lowest since October 2019.

The Czech stock market’s worst performance in years was brought on by increasing global anxiety over the spreading coronavirus epidemic already ravaging Europe. Luxury and tourism shares were first in the line of fire and were soon followed by mining and automobile shares.  On February 25, because of a privacy scandal, the shares of Avast, fell by 3.2 percent wiping out close to one-fifth of the software maker’s value and dragging the PX Index to new lows.

The Prague Stock Exchange has been facing years of waning interest from traders, rights issuers, investors, and analysts. The central European country has a risk-averse citizenry and an underdeveloped pension fund. Consequently, there is a lower demand for equities. Businesses in the Czech Republic also prefer to finance their operations and expansions through debt rather than share sales. For this reason stocks investment in this landlocked country has shrunk by 77 percent in the last decade. Prague more than ever needs more IPOs to bring in more liquidity investors and to build diversity in its stock market portfolio. Delistings and buyouts have petered out the Prague Stock Exchange’s trading volume even as its neighbor’s such as Poland grow by 31 percent in the last decade.

How is the Prague stock exchange encouraging growth?

To reverse the ongoing slump, the exchange has embraced small startup IPOs and reduced its fees. The Prague Stock Exchange has additionally undertaken the cross-listing of stocks from other exchanges in unsponsored listings to increase its trading volumes. As an illustration, Avast had an IPO in 2018 in London but has been trading in the Prague Stock Exchange, becoming the fourth-largest constituent of its index. 

Nevertheless, as the economic sentiment continues to improve, the stock exchange is recovering. It is currently at its strongest since the Covid-19 related restrictions began to bite in March. The downturn, driven by a decline in capital and household spending and foreign demand as well as supply-side output in all areas of industry, is waning. Currently, the industrial sector has posted some of its greatest gains in months in the third quarter. There is increasing confidence in the service and retail trade sectors, and optimism for recovery is at a new high.

Radek Matějka, the Czech Statistical Office’s director, says “In a number of industrial enterprises, production gradually began to return to pre-pandemic levels.” Car production has resumed bringing up production in the automotive industry part manufacturing sector. The production of motor vehicles however is lower compared to last year. The pharmaceutical sector on the other hand is enjoying an 18% growth rate and the wood processing industry is performing better on a year-to-year basis since new orders from abroad only fell by 3.4% during the restrictions period. Confidence in the country’s economy has risen by 0.3 points to 87 points on a month-to-month basis this August.

More growth expected in 2021

Confidence amongst entrepreneurs is especially higher than that of consumers as the effects of the Covid-19 epidemic measures linger. The Czech ministry of finance had at the beginning of the year given a two percent growth expectation. By May, they revised this prediction to a 5.6 percent slump as the epidemic’s crisis bit hard into trade, culture, tourism, manufacturing, and the transport industry. The Ministry of Finance said that an economic recession was inevitable, even if the pandemic were to fizzle out in the next few weeks.

The pro-active policy of the government could however mitigate the effects of the recession in the second half of the year. There is an expectation that the Czech Republic’s GDP will rise by 3.1 percent in 2021. The country’s road to economic recovery is also highly dependent on the economic situation of its neighbors.

In the meantime, the Czech government has approved a job support program dubbed the “Antivirus” program “Áčka” and “Béčka” The program will go on until the end of October paying workers three types of wage compensation. These wage contributions packages range from 80 percent, 60 percent of paid compensation of wages, and remission of social security contributions package.