Czech Stocks Tumble to 18-Month Low Led by Erste on Share Sale

The Czech Republic’s benchmark stock index slumped to an 18-month low, led by Erste Group Bank AG, after Austria’s largest lender lowered its earnings forecast and said it plans to sell shares.

The PX Index slid 2.6 percent to 855.10 by the close in Prague, bringing the drop this quarter to 11 percent. Erste, which has a 20 percent weighting on the gauge, fell the most since October 2011. CEZ AS, the biggest Czech utility, retreated to an eight-year low on concern the opposition will levy new corporate taxes if early elections are held after the resignation of Premier Petr Necas.

Erste, the third-largest bank in eastern Europe, said today it plans to sell about 660 million euros ($865 million) of new stock in the third quarter to help repay Austrian government aid raised in 2009. Global stocks tumbled last week, with the MSCI Emerging Markets Index dropping 5.6 percent, after the U.S. Federal Reserve indicated it could start paring asset purchases should risks to the world’s biggest economy abate.

“Czech stocks have lost their appeal for investors,” Milan Vanicek, chief equity analyst at J&T Banka AS in Prague, said in an e-mail. The Fed’s comments prompted a global reduction in riskier assets and “the expected change of the Czech government may also play a role as a victory of the opposition would probably change the tax environment in a way that would be less favorable for corporations,” he said.

‘Slightly Contradicting’

Erste cut its earnings outlook, saying it now expects pre-provision operating profit to decline 5 percent this year. It had forecast “stable” profit, compared with last year’s 3.47 billion euros, at its annual general meeting in May. The bank plans to pay back 1.2 billion euros in Austrian state aid, as well as 559 million euros in capital linked to the assistance. Erste’s shares fell 7.9 percent to 524.90 koruna.

“It was always clear that they’d repay the aid, but that they need a capital increase for that is not so great,” said Dirk Becker, a Frankfurt-based analyst at Kepler Cheuvreux who rates Erste shares hold. “It’s also slightly contradicting what they’ve always told us.”

The PX Index is the sixth-worst performer this year among 94 tracked by Bloomberg globally, as stocks including Erste, CEZ and Vienna Insurance Group AG lagged peers, according to data compiled by Bloomberg. The three companies account for more than half of the PX’s weighting, the data show.

President Milos Zeman said yesterday he is considering an interim technocrat cabinet that would replace the Czech three-party coalition and may lead to early elections. The opposition Social Democrats, who lead in opinion polls and plan special taxes on the biggest companies, are pressing for a snap vote after Necas quit last week amid a spying and corruption scandal.

The PX Index’s 14-day relative strength index slid to 14, the lowest reading in almost two years and below the 30 level that signals to some analysts that an asset may be oversold and poised for a rebound. The RSIs of Erste, CEZ and Vienna Insurance are each below 30, according to data compiled by Bloomberg.

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