British hungry for Czech bonds
25. 1. 2016 | Source: BusinessInfo.cz
City of London market players bet on an under-valued crown.
British capital has discovered the Czech Republic. Last year alone investors based in Great Britain spent CZK 60bn buying up Czech state bonds, meaning they purchased a third of all the bonds issued by the government. The City of London thus became the biggest foreign source of financing for government spending. Seven out of every 100 crowns of the domestic debt was lent to the Czech Republic by creditors seated in London or other British localities.
Expert observers have concluded that the investors are speculating that the crown will prove to be undervalued, meaning it will later amount to an ace card in the investment stakes.
"Many foreign investors have started to speculate on the potential of currency profits, which they could realise when the Czech National Bank [ČNB] drops its currency interventions," said Cyrrus brokerage analyst Marek Hatlapatka. If the crown was to strengthen, the value of the investors' commitments to the domestic bonds would grow.
It is certainly the British who are the most active in betting on a future strengthening of the Czech currency. At the beginning of last year, Great Britain-based market players held Czech state bonds worth CZK 35bn, but by the turn of the year the recorded value of their holdings had nearly reached one hundred billion crowns, according to finance ministry statistics.
"Britain along with Luxembourg is a typical seat for institutional investors in Europe," said Martin Lobotka, an analyst at Conseq investment management firm. Investors headquartered in one or the other country at the end of 2015 held Czech state bonds worth some CZK 160bn, equivalent to around 11 percent of all crown-denominated debt securities issued. Those principally interested in this country's government bonds are banks and investment funds oriented towards investments with a horizon of several years, according to analysts.
Czech state bonds have also been identified as promising by investors from other countries in recent years. Norway, for instance, during 2014 made its first investment into the bonds, amounting to several tens of millions of crowns. The US and Belgium have also increased their holdings of the debt instruments. "Recent years have also seen growing interest in the state bonds of the Czech Republic in countries outside of the European Union," affirmed Gabriela Štěpanyová, a finance ministry spokeswoman.
Originally published in E15 weekly, economic and business newsmagazine. Author: Jaroslav Bukovský