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US skeletons scaring Prague bourse

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On Tuesday, the Prague Stock Exchange felt again the cold from the United States where markets fell to their lowest levels in 12 years at the start of the week. Good performance of the mining company NWR, which showed nearly a 80% profit growth for last year, did not reverse the situation either.

The Prague bourse index ended the Tuesday session just below zero, but during the day it was losing more than 1%. Trading even had to be suspended in shares in the largest Czech used-car dealer AAA Auto after the stock fell more than a fifth to its all-time low of CZK 5.40 apiece despite the fact that no new information about the company appeared on the market on that day. NWR was losing roughly 9% before noon. Analysts were disappointed about the proposed size of dividends as well as about the sales outlook for this year. For example Josef Němý of Komerční banka said he expected sales to drop by at least 10%.

More skeletons in the closet

As US companies announce their full-year figures, they’re revealing more “skeletons in their closets” that might have remained hidden before. Moreover, markets are being buffeted by uncertainty about whether the US government is able to stabilise the financial system. That slashed US stocks by roughly 3.5% on Monday, which was followed by falls of shares in Europe and Asia on Tuesday.

The insurance giant AIG expects to post the biggest loss that a US company has ever incurred. The company allegedly had a loss of USD 60 billion (some CZK 1.3 trillion) in the last quarter of 2008. Just to give some comparison, the sum is 200 million higher than the 2009 budget of the Czech government.

The AIG loss was allegedly caused by write-offs of investment in commercial properties and other assets. AIG is now in talks with government representatives on additional aid. The US government helped the insurer twice last year. In September when AIG was on the verge of collapse owing to bad investment in mortgage bonds the government provided it with USD 85 billion. More aid came in November in the form of purchase of the loss-making investment and looser conditions on loan installments.

Nationalisation in America?

The US government is also expected to inject more money into Citigroup and struggling domestic banks. “Now it’s probably clear to everyone that they would not survive without state assistance,” Cyrrus analyst Marek Hatlapatka said. The market counts on at least a partial nationalisation of these institutions, he added.

As Fed head Ben Bernanke warned on Tuesday, the US economy is falling sharply. And if the situation does not get stabilised, the recession could continue also next year.

In the long run, the Czech market and our crown do not pay only for the global negative sentiment, but also for the fact that, within the central European region, investors include the Czech Republic in one group together with much more problematic economies like Hungary and the Baltic countries. Analysts from Česká spořitelna as well as the rating agency Standard & Poor’s pointed this out on Tuesday. The agency said the Czech Republic was likely to cope with the current global crisis better than most other countries in the region.

Translated with permission by the Prague Daily Monitor.

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