Investment Management Analysis Both the Research Paper

  • Length: 9 pages
  • Sources: 5
  • Subject: Economics
  • Type: Research Paper
  • Paper: #60703660

Excerpt from Research Paper :

This would play a role in helping to bring the Czech Republic into the EU in 2004. The effect that this would have on the Prague Stock Exchange is that it would cause it to rise to 1,940. At which point, it would have a severe down trend economy during 2008 and into 2009. The only difference is: that the various reforms and economic policies that the government was using at the time, helped to contribute to mitigating the effects of the slowdown (as the economy would experience a less severe economic contraction of 3.4%). ("Czech Republic")

The price movements of the Slovak equity market in the last 10-15 years

The Bratislava Stock Exchange was founded in 1991 and has been in operation since 1993. ("Basic Information") Like what occurred in the Czech Republic the Slovak stock market went through two bear markets that would last until 1998 -- 1999. Where, the index would be able to find long-term support at 68. This would invite a gradual recovery in the index that would last until 2004. At which point, Bratislava Stock Exchange would climb to an all time high of 509. It would then decline and then hold resistance of 420.08. Next, the average would change trend and would begin to go into a long-term decline, with it currently sitting at 244. ("History SAX Index") What all of this shows is that in Slovakia the economic reforms have been more challenging. Where, the overall effectiveness of these reforms have been not been fully felt in the economy, in comparison with the Czech Republic. This is significant because the union between the two countries when they were Czechoslovakia was more beneficial for the Czech's in comparison with the Slovak's. As a result, this was one of the main reasons for splitting the two countries up. Now, it appears as if the Czech Republic is continuing to enjoy larger amounts of economic prosperity in comparison to Slovakia.

Provide some preliminary analysis on why such patterns are observed in this market in the last 10-15 years

Slovakia was similar to the Czech Republic in that after the downfall of the Soviet Union their economy was based mainly on heavy industry. Where, the country was used by the Soviets throughout the Cold War, to provide Warsaw Pact countries with various armaments. Once the Soviet Union collapsed, meant that the economy would follow suit. To revive the economy, Slovakia engaged in a number of different reforms that would attempt to address the underlying issues. However, there were a number of different obstacles that would slow the overall effectiveness of the various reforms the most notable would include: corruption / nepotism and large government expenditures. The way corruption / nepotism would affect the various reforms of the country is: they would allow for a number of different under the table deals to be made with various private entities. Once this began to take place, it was similar to a cancer, where it would eat away at the underlying fabric of the economy. As the various bribes, kickbacks and payoffs would be used to fill the pockets of various government officials. Yet, this did little if anything to help improve the standard of living, as this would make the cost of various projects more expensive. Then, when funds would reach the intended projects it would be far less than what was intended. At which point, the overall effectiveness of the reforms would be mitigated. When you combine this with the overall amounts of nepotism that was taking place within the government, meant that you would have friends and family of government officials working in other areas. In many ways one could effectively argue, that this created a class of corrupt government officials that would seek to use the government for the benefit of the few. Where, this ring of corruption would become more common. This is problematic for Slovakia because these two forces will prevent any kind of significant economic growth from taking effect. Over the course of time, this will cause the reforms to be ineffective. Once this takes place, it means that the standard of living will not improve, affecting the long-term stability of the country. The overall affects of these reforms and the issues of corruption can be seen with the performance of the country's stock market between 1997 and 2002. Where, they overall severity economic contractions were much more extreme than in the Czech Republic. While, the economic recovery, was not as strong compared to the Czech Republic from 2002 onward. This is despite the fact that Slovakia entered the EU at the same time as the Czech Republic. ("Slovakia") What all of this shows, is that the overall amounts of corruption and nepotism have reduced the strength of the Slovak economy. Where, it is constantly subject to more extreme boom and bust cycles. In many ways one can infer that these are the biggest factors that are hindering the economic growth of the country.

The large amounts of government spending would be tied to the various forms corruption and nepotism that is taking place in Slovakia. Where, the attitude of the various government officials would play a role in determining how much fiscal restraint they would have. This is significant because, corruption and nepotism reduce the overall amounts of negative growth, which will have a negative effect on the various tax revenues that the government is generating. These two areas are important because they affect the overall amounts of foreign capital that the country is attracting and how various services are delivered. When there are large amounts of corruption taking place, this means that revenues that are being generated are being siphoned off by various government officials. To effectively deliver different services to the people would cause the overall amounts of spending to increase. As the government must not only account for the money that was stolen, but it must also add an additional amounts to provide the same service. Mathematically speaking, this means that in theory the government could be paying for the same services two or three time (because of large amounts of corruption). This will have an effect on foreign capital spending, where the overall amounts of corruption will cause some investors to become weary about doing business. This is because many will feel that the lack of transparency and backroom deal making is a sign of country that is economically unstable. When these kinds of investors are doing a comparison of different investment opportunities throughout the region, they will see that there is less corruption and more transparency in other countries (such as the Czech Republic). This will cause the overall amounts of foreign investment capital to be far less; as investors will feel that they can receive a better return and will have less risk. Over the course of time, these two factors will cause the levels of government spending to increase, because the government must spend double or triple the amount to deliver various services to its citizens and it has to use the debt markets to finance the funding of various infrastructure as well as public works projects. This causes the overall amount of debt to rise, as the government must continue to keep borrowing more. At which point, this will become a negative drag on the economy, as the government must pay more in interest because of the large amounts of debt. ("Slovakia") Once this takes place, it means that economic growth will be much more difficult to achieve, where these two issues will weigh on any kind of economic performance. This is significant, because it underscores why Slovakia has not been doing as well economically as the Czech Republic. Where, the various reforms that were imposed during the 1990's were a good first start. However, they failed to curtail spending and control corruption that is occurring.

Clearly, the Czech Republic was more successful at transforming their economy over the last 10 to 15 years. This is because they were able to create a shift in the economy, that was successfully enacted by various reforms and they were accepted into the European Union. As a result, the long-term effects of these different reforms is that there would be various short to medium term challenges that the economy was wrestling with during the 1990's. At which point, the effects of these different factors and the fiscal discipline of the government would allow the Czech economy to become very balanced. Where, it would experience above average growth, followed by mitigated effects during financial downturns. While Slovakia, has experienced more economic challenges when attempting to enact various reforms during the same time. This is because the issues of corruption / nepotism and large amounts of government spending would hinder economic growth. Where, the effects on the economy would mean that Slovakia would experience less economic growth and more extreme downturns. This is because these different factors would work similar to economic…

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