Domestic banks they had been holders for many years Prague Stock Exchange. Whether it was shares Erste, Commercial banks, or later i Coins, investors could count on a stable price spiced with a nice dividendou. By default, the local banking market showed good performance and trouble-free results of stress tests of central bankers.
However, the coronation crisis shook the banks’ privileged position in the eyes of investors. Over the past year, the value of all three banking stocks has fallen by tens of percent. After the spring wave of the pandemic, there was still a short breath and a slight increase, but the last months do not look very optimistic again. The second wave, associated with a record increase in the number of people infected, brought a repeat of the state of emergency and strict government measures, which will mean big problems for many sectors of the domestic economy, but also for small businesses. Logically, this must also affect the loan portfolios of banks. Although the mood is at a freezing point, proven investor guides traditionally advise you to buy when the markets are down.
How do experts from the world of money view the situation of banks? Is it the right time to shop, or could there be an even bigger drop? And which companies on the Prague Stock Exchange trust the most?
Jaroslav Šura
investor
Until a few weeks ago, I thought that the shares of Czech banks were strongly undervalued and that within a year and a day we would see the prices of Komerčka and Moneta starting at seven. The brutal increase in coronavirus numbers surprised me a bit, so I adjust my portfolio in favor of the new economy, especially e-commerce. Restrictions on coronavirus will damage the economy and banks will have to tighten their provisions. Of course, bank stock prices will recover, but later than I thought. In the meantime, I can imagine quite ugly valuations. As long as the virus is rampant here, there is no hurry to invest in Czech banks. I prefer to shop more expensive when the trend changes. Although it doesn’t look like that today, it will come one day. For a long-term investor who does not mind low liquidity, Pill as an e-commerce can be an interesting choice. And perhaps in the event of larger declines (a fact for hard-nosed investors), the cautious accumulation of shares in ČEZ and Czech banks.
Jan Traxler
investment advisor and executive of FINEZ Investment Management
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In my opinion, the banking sector is today one of the most undervalued in stock markets around the world. This applies not only to banks in our country, but throughout Europe and in the USA. Low interest rates and, of course, fears that some borrowers will not be able to repay their loans due to coronavirus and the global economic recession play a role in this. So there are reasons why bank stock prices have fallen so much.
In addition, many investors in general have lost confidence in banks after the so-called financial crisis in 2008-2009 and still prefer to avoid their shares. When the covid panic broke out in the markets in the spring, it again raised concerns about how banks would stand up. This time, however, the banks are in good shape. And if they report solid economic results, the banking sector could be surprised by the outperformance of the rest of the market in the future. Personally, therefore, I see no reason to avoid bank shares, on the contrary, in my opinion, it is good to buy bank shares, both in our country and in the world. I don’t think they will be much cheaper, but more expensive over time.
Martin Mašát
portfolio manager Partners of the investment company
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From a fundamental point of view, Komerční banka or Moneta are certainly cheap. The year-on-year decline of 30 percent or this year’s more than 40 percent certainly does not correspond to the deterioration of the balance sheet numbers and outlook of these banks, despite the two waves of coronavirus. Unfortunately, the market price rarely follows the fundamental data on which analysts vehemently rely, but rather shows the outlook of investors. And here Czech banks pay extra for the invisibility of the Czech stock market. For large investors, these are tiny or illiquid investments, even if they have a good profitable future. Simply put, when liquidity is barely sufficient for small Czech investors, no one “big” can invest in Czech bank shares. And it is the marginality of the Prague floor and the inefficiency of stock prices that promise relatively solid profits in the long run.
David Brzek
portfolio manager of Fio banka
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Due to the high share of the financial sector, the Prague Stock Exchange as a whole suffers. The PX Index has been at a loss of about 20 percent since the beginning of the year and its performance is one of the weakest markets in the world this year. Although uncertainty about future developments and economic impacts remains significant, I do not think that the situation would justify a more significant decline below the spring lows. According to surveys, payment morale is relatively good after the end of the first credit moratorium and the reserves created by individual banks should be sufficient. From a medium-term perspective, banks are positive about their robust capital adequacy, which will bring investors extraordinary dividend yields in the coming periods. From this point of view, in my opinion, domestic banks remain attractive at current levels and can continue to accumulate within the portfolio. I continue to consider CEZ, which lags significantly behind its fundamental value, to be interesting on our market.
Štěpán Hájek
financial market analyst Purple Trading
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Czech banks are in a difficult situation, as the government’s promises to reimburse the costs of operating restaurants or fitness centers are so far only promises, and in reality some entities may be on the verge of existence. Representatives of Czech banks have made it known that further postponement of repayments is no longer on the agenda and bad loans may be a problem in their portfolio in the coming months. Extremely low interest rates are a handbrake for banks, and the light at the end of the tunnel may be one of the fastest inflation in Europe and a weak koruna, giving the CNB room to think about raising rates next year. The banking sector is thus relatively risky at the moment and the pressure on it will increase during the next lockdown. The results of the large American banks for the third quarter indicated something similar, although they did not turn out so badly, but they only signaled a pause in the pain caused by a pile of bad loans.
On the Prague Stock Exchange, I would stick to stories that may provoke an increase in demand, and therefore in prices, in the future. A very interesting project is Pilulka.cz, which belongs to the e-commerce sector, which is one of the fastest growing sectors ever. For a long time, I would stick to Avast, whose price has even fallen from historical highs, and its inclusion in several prestigious European indices supports demand. Technologies in general are the heart of most investors’ portfolios.
Štěpán Křeček
Chief Economist of BH Securities
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The PX index has fallen from 1,115.63 points to 868.03 points since the beginning of the year. This represents a decrease of more than 22 percent. Shares from the financial sector, which make up almost 44 percent of the index, are mainly to blame. In the world, on the other hand, we were able to observe rapid growth in technology companies, which are unfortunately only minimally represented on the Prague Stock Exchange. An exception is, for example, the shares of Avast, which have appreciated by almost 15 percent since the beginning of the year.
The second wave of the coronavirus pandemic will reinforce the trends we could have seen in the first wave. It can therefore be expected that the trend of transition from the real to the virtual world, which is water to the mill of technology companies, will continue to accelerate. On the contrary, bank shares will continue to be under pressure. It is certainly not beneficial for them to set interest rates in the economy at an extremely low level. In addition, it can be assumed that some borrowers will not be able to repay their loans.
But not to be negative, I must say that, given the current pricing of bank shares, it is difficult to imagine further deep declines. In the long run, therefore, this may represent an investment opportunity for a specific type of investor.
Michal Semotan
portfolio manager of J&T Investment Company
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The year 2020 brought deep declines to most titles on the Prague Stock Exchange. And bank titles are affected significantly. The coronavirus pandemic took away what adorned them and why investors bought them – a dividend! Bank securities have been depreciating about 40 percent since the beginning of this year. It can be said that they didn’t actually breathe much in the overall stock euphoria, and they stay close to their minimum values. With the growing number of patients in the Czech Republic, another question arises as to what effect the economic effects of the pandemic will have on the loan portfolio of banks.
The total lockdown may not occur (companies will produce), but in the semi-lockdown we are already partially – not in the ordered, but by the way we behave – quite logically. So the sales of traders, shopping centers and a large number of sectors in the economy will fall, sometimes significantly. This will be reflected in the ability of companies, and in some individuals, to repay their loans, banks will have to create provisions. Have they already created enough of them? Hard to answer – but only the idea can put pressure on some investors to sell bank titles and may put pressure on the price, even if unjustified. If banks return to paying dividends in 2021 and if there is anything to do, it is a great opportunity to buy now (or in the near future).
But it’s a bet for risk-oriented investors – I’m already partially long and I will bid on lower prices on Erste or Monet. But if I could now choose one title to buy in Prague – it would be CEZ. Pre-sold electricity, as well as the current price level of electricity contracts, give me optimism about CEZ’s results. At the same time, a higher dividend will come than this year – possibly an extraordinary one, or increased in 2021, if ČEZ “divestments” some of its foreign assets.
Olivia Lacenová
TopForex analyst
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The growth in the number of people tested positive for coronavirus infection is still pushing down stocks across Europe. As a result of the local deterioration of the situation in the Czech Republic, measures are being tightened, which may result in further economic problems. Shares of Czech banks, which are driving down negative investor sentiment, are also suffering. However, this is not a surprising situation. We could observe a similar development during the first wave of the coronary crisis in the spring. For this reason, it is probably better to wait for the situation to develop and not rush to buy – even if the stock prices of banks are tens of percent lower than a year ago, they can go even lower. On the contrary, Avast, for example, is interesting in terms of risk diversification on the Czech stock exchange. Recently, investors’ attention has also been focused on the IPO of Pilulka.cz shares, which can also be an interesting investment opportunity.
Lukáš Kovanda
Chief Economist of Trinity Bank and member of NERV
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The latest message from the International Monetary Fund is clear: “Developed countries will not have to save much because of the pandemic.” The reason is the expansionary monetary policy of central banks – “printing billions”. This buys politicians time for the necessary reforms, but instead they inflate debt. The consequence of a pandemic crisis will therefore be even faster debt growth than after the financial crisis.
What does this mean from the point of view of banks not only in the Czech Republic? Central bank interest rates may be extremely low for years, in many cases negative. This is not the best news for banks. On the other hand, despite possible squabbles next year, real estate prices and interest in mortgage lending will continue to rise (mortgages will be cheap and real estate will be even more profitable compared to a number of other instruments such as term deposits). There will be no large-scale bankruptcies in the economy, companies will survive on debt, the share of zombie companies will grow. This may not be bad news for banks. Zombie companies can still make money by lending at generally low interest rates.
Swelling debt is a disaster for the economy as a whole, amplifying the “debt culture”. Saving does not pay off, inequality in society increases (property owners, landlords × tenants, savers with zero interest rates on deposits) and deepens the pernicious “zombification”, which means stopping productivity growth. For banks, however, it is not just about the negatives. And when else to buy shares than “when blood flows on the streets” or build field hospitals? A simple “portfolio” mixed from one large (Komerční banka type) and one smaller, predatory bank (Moneta type) can be worth considering.
Ondřej Tůma
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