Czech stocks may gain after election threatens tax hike plans
* Social Democrats slim win threatens their tax plans
* Positive for CEZ, Komercni Banka, Czech Telefonica
* But tough coalition talks could also unsettle investors
By Jason Hovet
PRAGUE, Oct 28 (Reuters) - Czech blue-chip stocks may benefit from the centre-left Social Democrats' struggle to only a slim victory in weekend elections, likely ruining the party's plans for new taxes on utilities, banks and telecoms companies.
While the narrow win also raises the risk of messy coalition talks that could unsettle investors in the longer-run, analysts said it would be positive for energy group CEZ, lender Komercni Banka and telecoms group Telefonica Czech Republic if it killed the tax plans.
The Prague bourse is due to re-open on Tuesday after staying shut on Monday for a holiday.
Going into the election, the Social Democrats (CSSD) had said they would look at an up to 30 percent tax on big utilities, banks and telecoms to bolster public finances, mirroring moves in regional peer Hungary which have hit company results hard. Corporate tax in the Czech Republic is charged at 19 percent.
The party won just 20.5 percent of the vote on Saturday, however, the lowest tally for any winner in the Czechs' post-communist history. It will hold 50 of the 200 seats in the lower house.
The result dashed the party's hopes that it could form a minority cabinet supported by the Communists, who won 33 seats, leaving the two biggest leftist parties without a majority.
Instead, the Social Democrats will need to look to the anti-corruption movement ANO, started by a billionaire food and agricultural tycoon. The centrist group emerged as the second strongest party as voters punished traditional parties for sleaze scandals and a weak economy.
"Given the weak position of CSSD and opposition of ANO to higher corporate income taxes, we think the idea of either higher corporate income taxes or special taxes on selective industries is dead," Ceska Sporitelna analyst Martin Lobotka said in a note.
"This is slightly positive news for Telefonica, Komercni Banka or CEZ."
Majority state-owned CEZ, central Europe's biggest listed utility, has seen its share price hit an eight-year low in recent months due to slumping power prices and the prospect of new taxes.
CEZ shares could gain in the single percentage points if the tax plans do not go ahead, said Josef Nemy, an analyst covering CEZ at Komercni Banka.
The Czech crown and bonds have largely ignored the election but messy coalition talks could worry investors.
Talks could last several months and the country is likely to start 2014 with a provisional budget, which limits spending to this year's levels. Parties are pledging to keep deficits below the EU-prescribed limit of 3 percent of economic output.
Attempts to form a government suffered an early setback on Sunday when the Social Democrats tried to oust their leader due to the weak showing at the ballot box. Bohuslav Sobotka has refused calls to resign but the party leadership body voted to remove him from the team for coalition talks.
"The upshot is that it looks like we're in for a fairly lengthy period of coalition negotiations. And the coalition that does emerge is likely to be fragile," William Jackson, emerging markets economist at Capital Economics, said in a note.
"Nonetheless, Czech politics is notoriously unstable and the economy and financial markets haven't tended to suffer as a result."
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