Avast Plunge Exposes Frailty of Prague’s Dormant Stock Market

(Bloomberg) -- The Czech stock market just had its worst week in years, and it’s mainly because of a company that didn’t even plan to be traded there.

A privacy scandal at Avast Plc wiped out more than a fifth of the Prague-based software maker’s value last week, dragging the PX Index of 12 stocks down 6.2%. That was the worst slump among benchmarks worldwide after Hong Kong.

The underperformance was the latest blow to the standing of the Prague Stock Exchange, which has been plagued by years of waning interest from rights issuers, investors, traders and analysts. An underdeveloped pension-fund industry and a risk-averse population are curbing demand for equities, while companies overwhelmingly prefer debt financing over share sales.

The week “has clearly shown how badly Prague needs more IPOs that would attract more investors, boost liquidity, and offer a more diversified spectrum of different sectors,” said Martin Cakl, an equity analyst at Patria Finance AS. “Last year, Avast pulled the whole market up. Now it’s sinking it.”

The overall traded volume of the bourse has fallen by 77% over the past decade, weighed down by buyouts and delistings that have eclipsed a trickle of initial public offerings. In the same period, turnover has increased 31% for Poland’s WIG20 Index, and 137% for the MSCI Emerging Markets Index.

Trying to reverse the long-term slump, the Czech exchange has reduced fees and launched an IPO market for small startups. It has also actively cross-listed stocks from other bourses, in some cases through so-called unsponsored listings that don’t need to be initiated or approved by the issuer. That was the case with Avast, which held an IPO in London in 2018 and didn’t intend to be traded in its hometown, said Prague Stock Exchange spokesman Jiri Kovarik.

An Avast spokeswoman couldn’t be reached for comment.

Now, with a $5.8 billion market value and a mere 0.6% weighting in the U.K.’s FTSE 250 Index, the company is the fourth-biggest constituent of the PX Index. Its 14% weighting puts it behind only two banks and a power utility that between them account for 56% of the Czech gauge.

Avast shares started recovering on Friday and gained a further 4.3% on Monday to 443.2 pence as of 9:18 a.m. in London. In Prague, they jumped 6.3%, turning the Czech equity index into one of the world’s best performers at the start of the new week.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Paul Jarvis, John Viljoen

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