A
Strategy for a ‘Top Tier’ Capital Market?
Disappointingly, publication of the World
Bank’s detailed assessment of the Czech Capital Market has been greeted with
deafening silence. The timing of the report’s publication[i],
last September, just ahead of the general elections and more recent
Presidential elections, undoubtedly didn’t help attract attention. That only
the main recommendations, rather than the body of the report, were translated
into Czech language probably didn’t help either. That is a pity because the
World Bank’s report, which utilised input from market participants, provides
not only a comprehensive overview of the Czech capital market but also gives
numerous insights and constructive suggestions. In particular, how a ‘top tier’
capital market can be developed.
Research ‘Coverage’
Halves
A study by AKRO
investiční společnost, a.s., a Prague based investment firm, shows that since the
end of the financial crisis there has been a steep decline in the number of
investment banks publishing up-to-date forecasts for companies on the Prague
Stock Exchange.
Using Bloomberg Data,
the analysis studied the level of research ‘coverage’ for companies included in
the Prague Stock Exchange (PX) Index. The term research ‘coverage’ refers to
the number analysts’ published financial forecasts for a given listed company. These
forecasts are provided mainly by investment banks but occasionally also by
independent research firms. For consistency, only forecasts included in the
Bloomberg ‘consensus’ were included, thereby ensuring out-of-date forecasts
were excluded.
By Jeremy Monk, AKRO investiční společnost, a.s.
The plethora
of investment indices continues to grow. Whatever the asset class, there is an
index to accommodate it, whether its stocks, bonds, commodities, property, art,
fine wine, etc.
But what
about an index that tracks the market value of a basket of historic bond and
share certificates? A group of scripophily experts joined forces recently to
develop one. The traded securities don’t have any “intrinsic” value, they
are just financial esoterica that, for various reasons, have significant
historical or decorative value.
The Historic Stocks Market (HSTM) Index tracks the auction prices of 100 “representative” share and bond
certificates and is updated every six months to incorporate the latest realized
sale values. Since its inception in late 2012, the index has risen by
approximately 25%.
Pohyby na trzích aktiv jsou běžným jevem.
Investoři mají v zásadě na výběr mezi vyššími očekávanými výnosy a nižším
rizikem. Preference výnosnosti je spojena s vyšší rizikovostí investičních
instrumentů, a naopak, rizikově averzní investoři by měli očekávat nižší
výnosnost. Obecně jsou za riziková aktiva považovány především akcie. Oproti
tomu, za „bezpečný přístav“ bývají považovány drahé kovy, a to jak
z pohledu rizika, tak výnosnosti. Následující analýza prokazuje, že to může
být omyl.
Zaměřujeme se na srovnání investic do zlata
a stříbra, a cenných papírů v podobě akcií – v tomto případě využijeme
jeden z akciových indexů, Dow Jones Industrial Average, DJIA. Údaje
z americké ekonomiky lze, vzhledem k vyspělosti akciového trhu,
považovat za reprezentativní. Začátek analyzovaného období (4. Q 2005) je
spojen s předkrizovým stavem amerických (a dalších) trhů.
Would
You Care to Dance?
Prague is that shy girl sitting in the
corner. She doesn’t realise she’s the prettiest girl in the room. As Paris,
Frankfurt and Madrid strut their stuff and even Dublin, Warsaw and tiny
Luxemburg show their moves; Prague has thus far refused to dance. The other
European cities are, of course, all dancing the Brexit fandango: Seductively putting
forward their credentials as a safe harbour for firms, especially professional
service firms, relocating activities from London in response to Britain’s
decision to leave the European Union (EU).
But what of Prague? Prague has so far been
noticeably absent in putting itself forward as a destination. That is a
mistake. It is the author’s opinion, and an opinion shared by many fellow
Brits, that Prague has a lot to offer. The Czech government, CzechInvest and
the City of Prague, shouldn’t be shy in outlining the case for relocation to
the Czech Republic.
Investors spend enormous amount of
time analysing companies, industries, trends and simply try to understand how
the business works. That is of course very much needed and at least basic
understanding is absolutely essential for correct asset valuation. However, in
the very end of the valuation process one deeply subjective variable may enter
into the calculation. And it may change everything.
Once companies have provided financial guidance: Are analysts’ forecasts
able to add any extra value? If so, how often and by how much?
A study by AKRO
investiční společnost, comparing the accuracy of analyst forecasts and
management forecasts, shows that so called ‘post event’ analyst forecasts, i.e.
those made post recent results/management guidance, are in general more
accurate than management forecasts. Both the frequency and magnitude of the
greater accuracy prove significant, a somewhat reassuring conclusion for
research analysts.
If analysts are
able to provide insights with regard to tangible measures of value, it seems
logical to assume analysts are also able to provide insights with regard to
less tangible measures of value, e.g. management quality, industry outlook. At
a time when the ‘active’ asset management industry is getting a bad press, and
many research departments are being downsized[i],
the results should give pause for thought.
Jeremy Monk, AKRO investiční
společnost, a.s.
The Mysterious
Case of the Czech Pre-War Bonds and the ‘Secret’ 1984/1986 Agreements
Scripophily isn’t
without its own controversies. The recent
discovery of the original signed 1984 and 1986 agreements between the
Bondholders Protective Council and the Czechoslovak State, in the archives at Stanford
University Libraries, calls into question the transparency and integrity of the
Czech State; both past and present.
Employer and Position: Investor & Portfolio Manager, Meridon Funds
Professional Credo: “Walking forward is a series of cleverly prevented falls.”
More
than Just a Pretty Picture!
Scripophily isn’t
the name of some rare disease, but rather a specialised branch of numismatics focused
on the study and collection of old stocks and bonds. The word is derived from
the English word "scrip" which represents an ownership right and the
Greek word "philos" which means to love. At AKRO, we have adorned the walls
of our offices not with photos or paintings but with old stock and bond
certificates. Such furnishings seem particularly fitting for a mutual fund
group whose activities are focused on such investments.
Over the years,
thousands of companies have at one time or another issued share and/or bond
certificates. It is therefore possible to focus on almost any theme to start a
collection. The railway and automotive industries are particular favourites
amongst Scripophilists. Thematic collections can include anything from
corporate scandals (Enron, Global Crossing,) to erotica (Nevada brothels,
Playboy Inc., Beate Uhse). I will confess that my collection at AKRO, and at
home, is rather eclectic in nature; a mixture of the decorative and the
historically interesting. It includes some lavishly illustrated foreign
certificates issued by Louis Bleriot, Claridges Hotels, The Port of Bruges, and
Societe Paris-France S.A. The majority of the collection is however focused on
old Czech certificates.
Michael
J. Mauboussin - Head of Global Financial Strategies at Credit Suisse in New
York - holds a strong view that demonstrating investment skill by investment
managers requires persistent and predictable performance. Expectations
investing is a process for identifying attractively priced stocks by first
estimating the market’s expectations of key value drivers and then determining
the likelihood that the company can or cannot meet those expectations.
This paper is a transcript of Michael's presentation at the Equity Research and
Valuation Conference 2012 held in Philadelphia on 6–7 December 2012 in
partnership with CFA Society Philadelphia.
Excerpt from the article: „Last week, the Cleveland Fed Financial Stress Index climbed to 1.92 (measured as standard deviations from the mean); a level associated with severe financial distress, and previously observed only during the 2011 market retreat, the 2008-2009 financial crisis, and the Asian crisis of 1998. This spike has been driven by widening credit spreads and other measures of systemic market-perceived risk. In 1998, a similar spike shortly preceded the collapse of Long Term Capital Management. In 2008, the spike shortly preceded the failure of Bear Stearns and Lehman Brothers. In 2011, the spike was followed by the failure and restructuring of Greek government debt… Presently, a further 40-50% collapse in the S&P 500 over the completion of this market cycle would not represent a worst-case scenario, but rather a run-of-the-mill outcome from current valuations. That prospect is coupled with an expectation of a U.S. recession, and the likelihood that Fed easing will be wholly ineffective in preventing either….
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