Located in the political and cultural hub of central Europe and the historical capital of Bohemia, the Prague Stock Exchange (Burza cenných papírů Praha) is at the heart of the Czech Republic economy.
Prague stock exchange
The Prague Stock Exchange (PSE) is the oldest Czech stock exchange and the primary location for those willing to invest in the Czech Republic. The exchange in Prague was founded under the rule of Empress Maria Theresa in 1871. Initially the primary function of the market was as a key hub for the European trade in sugar but is now the key exchange for Czech Republic stocks. The Prague Stock Exchange was forced to close for over 50 years under the communist Soviet regime installed following WWII. It officially reopened on April 6th, 1993 and quickly gained its footing as the key market in the newly formed Czech Republic. It immediately gained traction as it was used to privatize 1000’s of previously state-owned companies.
The Prague Stock Exchange is a joint-stock company, which is essentially a corporation with traded shares, with the majority of these shares owned by the CEE Stock Exchange Group (93%). CEESEG jointly owns majority stakes in the Prague and Vienna stock exchanges. Trading on the Prague Stock Exchange is conducted solely via licensed securities traders whom are typically banks and/or brokers.
The Prague Stock Exchange is dominated by a small number of large companies and as a result trading volume has decreased by 20% since 2013 as some of these multinational companies move to larger markets. The exchange has moved to counteract this downturn with the creation of START.
The START fund is a niche market exchange aimed at mid-level companies ($80-$100 million) looking to attract capital that may find the costs associated with a typical IPO prohibitive but are too large for crowdfunding and/or not interested in private financing. Companies listing on START will have access to an advisor throughout the process but will face much less regulations and expenses than listing on other exchanges. This strategy looks poised to increase the exposure of the Prague Stock Exchange and will begin operations in the latter part of 2019.
Czech economy & forecast
The Czech Republic was ranked 33rd in the 2019 IMB World Competitiveness Rankings and is considered a developed, social/market economy. The Czech Republic has a skilled workforce and a population of 10.5 million with a GDP of $194.5 billion USD. Relying on exports and traditional industries since the fall of communism, the current government is attempting to modernize the economy with a focus on technology and service sectors.
Although the Czech Republic joined the European Union in 2004, they have not adopted the Euro. The Czech Koruna (CZK) is the primary currency for transactions conducted on the PSE. The current exchange rate for 100 CZK in four global currencies is listed below:
Czech koruna: another forex market full of opportunities
In addition to stocks and indices, you can also consider investing in forex pairs, which include the country’s national currency – the Czech koruna (CZK). Representing a rather strong and stable economy of the Czech Republic, CZK was one of the world’s most rapidly appreciating currencies back in 2017.
If you want to try to profit from volatility and rapid price fluctuations in this currency, there are a plethora of options to browse through, including USD/CZK, EUR/CZK and an exotic currency pairing of CHF/CZK.
Benefits & risks of investing in Czech Republic
The Czech Republic has an educated workforce and the lowest unemployment rate in the European Union at 2.2%. There is a strong social welfare system, extremely low poverty rate and an extremely high human development index rating. There has been a strategic shift away from the traditional cornerstones of the economy such as automobile manufacturing, steel, transportation, chemical and pharmaceutical production towards the high tech and service industries. This is helping to diversify the Czech economy and reduce the reliance on exports.
The greatest risk to the Czech economy is the heavy reliance on exports, as seen in the recession of 2012-2013 which was caused in large part due to the decreased demand from Germany. Politically, the new government has pledged to decrease corruption, attract FDI and improve social welfare but is also under pressure from other European countries to accept its share of economic migrants and this could disrupt the economy.
Similar to other Central European countries, the Czech Republic is highly reliant on Russian natural gas for energy requirements and there is a real concern that this could cause serious disruptions to the economy as relations with the West continue to decline.
The PX stock market index
The Prague stock Exchange index (PX) is the official index of the Czech stock market and is a viable option for anyone investing in the Czech Republic. It is a free-floating capitalization-weighted index which means the price changes in real time and the components are weighted according to the total market value of their outstanding shares. The current index is comprised of 12 companies with a maximum percentage of 20%, with constituents reviewed quarterly. This is a significant change from the original 50 companies included in the index when it was formed on April 5, 1994 with a base of 1000 points. The PX index reached its peak of 1245 points in the same year. It quickly retracted to 387 points by June of 1995. Growing steadily since its sharp decline the index is currently valued at 1041.75 points. The Prague Stock Exchange has recently released a Total Return Index version, PX-TR which includes dividend payments in the overall value.
The 4th largest company listed on the PX index, Avast Software Company is a multinational cybersecurity company, representing a significant success for the modern Czech Republic economy. It is dually listed on the Prague and London Stock Exchanges and is the global leader in malware with over 435 million monthly users. It is specifically relevant to Czech economy growth for its uniqueness in a country dominated by traditional sectors.
Trade Avast PLC - AVST CFD
The top 5 companies representing almost 80% of the index’s total value are:
- CEZ – 19.4%
- Komercni Banka – 19.2%
- Erste Group Bank – 18.8%
- Avast – 12.8%
- Moneta Money Bank – 9.5%
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