Arca Capital and the Current State Caused by the Coronavirus

Arca Capital has been operating in the market for 20 years and during this period has experienced two global crises (the "dot com" crisis of 1995-2000; the Great Financial Crisis of 2008-2010) and one local crisis (recovery measures of the second term of Mikuláš Dzurinda’s government in 1999-2000).

In the financial world, all crises take place in the same way, in several stages:

• Collapse or the volatility of financial markets is the first stage, which is more or less caused by an inadequate reaction of financial markets to the facts that formally characterize the crisis.
• The liquidity crisis begins immediately when banking houses (the suspension of lending) and clients (liquidation of any position, the so-called bearish trend) start to react similarly in an inappropriate manner
• Fragile stabilization is a phase that needs to be achieved as soon as possible. An important task is to replenish  liquidity in the system or inject liquidity into the system. Markets are gradually calming down and assets are looking for their new price, which often changes significantly over a period of days. Markets are extremely sensitive to external stimuli.
• The opportunity phase begins when some assets do not have an "adequate" price temporarily, because they have been exposed to the pressure of financial markets or the segment is affected, or their owners dispose of them in the form of the so-called "fire sale".

• The phase of gradual recovery and permanent stabilization comes when a new balance in the markets is defined and investors are reconciled with the new status quo.

Given the nature of this crisis, which is triggered by health risks and the main trigger is a public reaction, political representatives and the media to an "unknown virus", I expect a rapid phase of fragile stabilization and an even faster transition to gradual recovery. Personally, I expect the changes to happen in weeks. However, this does not mean that everything will be the same as before. And the recovery process will also be slower and more cautious.

I assume that at the same time there will be a certain transformation of the economy and some changes that have taken place at an evolutionary pace will turn into a revolution. I think that the demand curve will not get into old ways completely and entire business areas and sectors will change. I believe that this will affect, for instance, online sales and distribution, but also a shared economy (due to the cohesion and solidarity with which people approach to restrictive measures), employment and working from home, health and care for the elderly or tourism (travel restrictions).

It is possible that we will also make some progress in the field of cooperation in environmental protection, due to the fact that the wave of solidarity, the shutdown of production companies and empty cities have caused a decrease in water or air pollution. I also expect that the emergence of new technologies will gain further momentum and we will really enter the information age soon, with a dominant share of the Internet and artificial intelligence.

At Arca Capital, we stick to our strategy and do not think that there will be any drastic changes. We will place emphasis on cross-selling and synergy effects.

 

The robust diversification of our portfolio currently appears to be an advantage. Also, our decision to extend the subject of interest to include technologically modern sectors (both online and fintech) or the silver economy (a polyclinic, balneo medicine and senior-house) appears to be correct.

We will further follow several lines:

• Energy sector and distribution of energy carriers
• Wood processing industry and automotive
• Retail networks and online distribution
• Facility and business services
• Real estate and tourism
• Wealth management financial services
• Silver economy and healthcare

We believe that this experience, even though unpleasant, will enrich us and after overcoming it we will be more mature and responsible. In the Arca Capital Group, we are used to looking at everything primarily as a potential opportunity, so (maybe this is exactly the reason why) we are preparing new projects and tackling  new challenges in this period, which will soon become part of our portfolio.

We look forward to further collaboration and wish you good health.

Rastislav Velic                                       

Chairman of the Board of Directors of Arca Investments, a.s.