GUEST COLUMN

Foreign securities could become a viable alternative to Slovak shares

Over the past year, any investment into the Slovak capital market has been accompanied by a great deal of caution on the part of investors. The SAX index has over the past couple of weeks fallen almost to the value it had when the bourse was established in March 1993.
Overall, investing in shares on the capital market has proven to be ineffective. Few investors have been willing to invest in Slovak shares, where there has not been any prospect of gaining a majority.
These accumulated problems have forced portfolio investors, which are mainly foreign entities, to look for alternatives to ensure their existence in Slovakia. According to Michal Horváth, the director of the Association of Securities Dealers, one alternative until the Slovak capital market has been restored sufficiently so as to attract investment, is to invest funds in foreign securities.

Over the past year, any investment into the Slovak capital market has been accompanied by a great deal of caution on the part of investors. The SAX index has over the past couple of weeks fallen almost to the value it had when the bourse was established in March 1993.

Overall, investing in shares on the capital market has proven to be ineffective. Few investors have been willing to invest in Slovak shares, where there has not been any prospect of gaining a majority.

These accumulated problems have forced portfolio investors, which are mainly foreign entities, to look for alternatives to ensure their existence in Slovakia. According to Michal Horváth, the director of the Association of Securities Dealers, one alternative until the Slovak capital market has been restored sufficiently so as to attract investment, is to invest funds in foreign securities.

This has recently been made possible by the new amendment to the Foreign Exchange Law, allowing portfolio investors to deal foreign securities issued in OECD countries, provided they are currently being dealt on the main foreign stock exchange.

The investment funds, however, will have a hard time reaching out to this alternative solution because, according to the law, selection of the foreign markets has to be approved by the Finance Ministry, which proceeds very conservatively when granting permissions. If however, investment into foreign securities is clearly stated as the investment fund's scope of activities, the approval by the ministry should be a formality.

On the other hand, the ministry should proceed cautiously when granting approvals to funds to deal foreign securities, for if they fail to valorize the investors' funds above the standard investment activities of ordinary people, they will prove ineffective and will disappear.

The service of buying foreign securities on the world's stock markets will also be provided to ordinary people. The first bank to play the role of a mediator in the Slovak Republic, VÚB, will offer two types of securities for trading. In the first group will be securities that are closely monitored by the bank, while the second will comprise all other securities.

Ordinary citizens will only need financial resources and enthusiasm to invest into foreign shares and bonds, some of which achieve very interesting valorization, which may help restore confidence toward investment funds and their strategies.

Pavel Habšuda, is an analyst with Slávia Capital brokerage company.

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