Online investment still fringe activity

GIVEN the current low interest rates in Slovakia, deposits in Slovak banks do not yield high returns. One of the only ways to secure a significant return on one's capital is to invest on foreign capital markets.

The country's dysfunctional capital market has dampened interest in e-investing on foreign markets as well.
photo: TASR

GIVEN the current low interest rates in Slovakia, deposits in Slovak banks do not yield high returns. One of the only ways to secure a significant return on one's capital is to invest on foreign capital markets.

About four years ago, Slovaks discovered mutual funds, the first step in becoming a financial investor. More and more people are now finding the courage to invest in bonds and equities on foreign capital markets through banks, as well as online.

In Slovakia there are two main web portals that offer trading on foreign financial markets - and, operated by the securities brokerages RM-S Market and Fio respectively.

Both are seeing a gradual increase in their number of clients. Currently, about 2,000 individual investors in Slovakia are trading through, with total assets worth Sk200 million (€5.32 million). The Fio Central European group reported 80 billion Czech crowns (€2.8 billion) in deals in 2005, a year-on-year increase of 30 percent. However, Fio did not specify its results for Slovakia.

"In Western countries, investments into stocks and bonds are commonplace. Unfortunately, it is not like that in Slovakia, although the situation has begun to change," the RM-S Market's Zoltán Antal told The Slovak Spectator.

Martin Vrablec, head of Fio's client service department, said the interest of local investors has grown since Fio started operations on the Slovak market in 2002.

"However, compared to other V4 countries, interest in Slovakia is still minimal. The fact that the local capital market is dysfunctional here plays an important role," Vrablec said.

Both agree that Slovak individual investors are conservative, although in some cases "they are willing to take on a greater level of risk if the returns are there to justify it," Vrablec pointed out.

Foreign web portals can compete with local portals mainly through lower fees for deals made on international markets. On the other hand, Slovak portals have the advantage of the local language and various support services, such as ordering a deal over the phone or visiting a branch in person.

There is very little competition among Slovak-language investment web portals, largely because so few exist. However, more such portals are expected to be established.

The RM-S Market's provides access mainly to US financial markets, while Fio gives access to markets in the US, Germany, the Czech Republic and Hungary. Neither is even considering including Slovakia's capital market in its online portfolio due to its lack of liquidity.

One of the attractions of investing through investment portals is the ease of doing so.

RM-S Market said that to use its services, an investor must be at least 18 years old and must have an Internet connection. There is no minimum investment, although if a client decides to use an account in his name in the US, the account by law must have a minimum of $2,000 in it.

Fio said that potential clients need only an ID card to be able to sign a contract; there are no account maintenance fees or minimum volume of investment. However, Fio recommends investing around Sk40,000 (€1,068) into each security.

Given the ease of investing, it is clear that the potential investor needs to pay more attention to how to avoid losing his money rather than how to spend it.

The RM-S Market's Antal said clients should be well informed of the risks and pitfalls of securities trading, and should know at least the basics of how financial and capital markets work.

"Investors should have a precise investment strategy with precise limits as well as good self-discipline, because 80 percent of the art of investment boils down to the mental characteristics of the investor. First, he should thoroughly check into the securities he wants to invest in. It is also important to follow developments on the market and to make investment decisions based on those developments. Last but not least, he should not forget that no one is strong enough to go against the market," Antal explained.

Fio's Vrablec also said that preparation was key before taking the plunge. "Before beginning, investors should decide how much they want to invest into stocks and how much time they want to devote to trading in stocks. It is important to listen to recommendations and to choose a clear investment strategy and stick to one's previous decisions."

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