Baluarte
05-11-2013, 08:54 AM
The Hungarian forint was until recently the currency everyone loved to hate as investors took fright at new management at the country’s central bank. But now it’s in turnaround mode.
The euro was hovering well above the psychological barrier of HUF300 ($1.30) in March, but fast-forward to early May, and the forint has become the region’s best-performing currency, buoyed by the allure of Hungary’s relatively high interest rates and a warmer attitude towards new efforts by government and central bank to work together in an effort to kick-start the economy.
“I’ve always thought that pricing in that the central bank [with new Governor Gyorgy Matolcsy at the helm] would go and destroy its own economy was wrong,” said Bartosz Pawlowski, head of strategy for this region at BNP Paribas in London.
“I think data is improving and Hungary has recently become one of the most attractive markets to have [a position],” added Mr. Pawlowski, who recommends buying the forint against the Polish zloty.
In the past week, the forint has been the best-performing currency in the central European region, with the euro having sunk under HUF293 from HUF295.62, and the forint strengthening 0.8% over the period to its strongest since February 21. In the meantime, the Polish zloty has gained a more modest 0.4% against the euro, while the Czech koruna has weakened slightly.
Part of the rationale here is Hungary’s high interest rates. Benchmark rates stand at 4.75%. With several major central banks such as the European Central Bank and Bank of Japan holding their rates at or close to zero, that makes Hungary shine as a place to park funds. Hungarian debt auctions this week have been met with blowout demand.
Still, some fear this hunt for so-called carry alone isn’t enough to reinforce a lengthy forint rally. Instead, they say, this is more about investors giving up on negative bets. “People were very short [the forint] and are closing out as it’s too expensive to hold such positions for too long,” said Peter Attard Montalto of Nomura, adding: “This is not any sort of big optimistic view of investors on Hungary.”
However, concerns regarding anticipation of outstandingly unorthodox steps by the central bank do seem to be fading, said Gergely Palffy, analyst at Hungarian brokerage Buda-Cash.
The Hungarian central bank and the Budapest government are working together to kick-start the economy, but despite their measures being relatively small in size and–depending on the details coming from talks with retail banks–they could lead to results, analysts have said.
The program offers low-interest loans to small- and mid-sized businesses and also aims to help them convert their burdensome foreign-currency loans into local currency.
“The impact of this program on growth is positive, but limited: we think the yet-to-be worked-out details of the cheap, small and medium-sized enterprise financing program could at least partly lead to financing already planned projects and result in limited new projects,” Hungarian brokerage Concorde Securities economist Janos Samu said at the time of the announcement of the program in early April.
The central bank’s Monetary Policy Council is also easing rates, but gradually. Analysts expect rates to bottom out at around 3.75% in the coming months.
The cabinet is working to present figures that satisfy the European Union, including a budget deficit below 3% of gross domestic product, which may appeal to investors, but last week, the EU called on Hungary in its latest Spring forecast to present further steps to meet this target in 2014.
Fundamentals have changed little, however: the economy contracted last year by 1.7% and only a very limited growth can be expected this year, despite the government’s efforts.
The central statistics office will publish first quarter gross domestic product data on Wednesday, and analysts mostly expect the economy to continue shrinking.
The euro was hovering well above the psychological barrier of HUF300 ($1.30) in March, but fast-forward to early May, and the forint has become the region’s best-performing currency, buoyed by the allure of Hungary’s relatively high interest rates and a warmer attitude towards new efforts by government and central bank to work together in an effort to kick-start the economy.
“I’ve always thought that pricing in that the central bank [with new Governor Gyorgy Matolcsy at the helm] would go and destroy its own economy was wrong,” said Bartosz Pawlowski, head of strategy for this region at BNP Paribas in London.
“I think data is improving and Hungary has recently become one of the most attractive markets to have [a position],” added Mr. Pawlowski, who recommends buying the forint against the Polish zloty.
In the past week, the forint has been the best-performing currency in the central European region, with the euro having sunk under HUF293 from HUF295.62, and the forint strengthening 0.8% over the period to its strongest since February 21. In the meantime, the Polish zloty has gained a more modest 0.4% against the euro, while the Czech koruna has weakened slightly.
Part of the rationale here is Hungary’s high interest rates. Benchmark rates stand at 4.75%. With several major central banks such as the European Central Bank and Bank of Japan holding their rates at or close to zero, that makes Hungary shine as a place to park funds. Hungarian debt auctions this week have been met with blowout demand.
Still, some fear this hunt for so-called carry alone isn’t enough to reinforce a lengthy forint rally. Instead, they say, this is more about investors giving up on negative bets. “People were very short [the forint] and are closing out as it’s too expensive to hold such positions for too long,” said Peter Attard Montalto of Nomura, adding: “This is not any sort of big optimistic view of investors on Hungary.”
However, concerns regarding anticipation of outstandingly unorthodox steps by the central bank do seem to be fading, said Gergely Palffy, analyst at Hungarian brokerage Buda-Cash.
The Hungarian central bank and the Budapest government are working together to kick-start the economy, but despite their measures being relatively small in size and–depending on the details coming from talks with retail banks–they could lead to results, analysts have said.
The program offers low-interest loans to small- and mid-sized businesses and also aims to help them convert their burdensome foreign-currency loans into local currency.
“The impact of this program on growth is positive, but limited: we think the yet-to-be worked-out details of the cheap, small and medium-sized enterprise financing program could at least partly lead to financing already planned projects and result in limited new projects,” Hungarian brokerage Concorde Securities economist Janos Samu said at the time of the announcement of the program in early April.
The central bank’s Monetary Policy Council is also easing rates, but gradually. Analysts expect rates to bottom out at around 3.75% in the coming months.
The cabinet is working to present figures that satisfy the European Union, including a budget deficit below 3% of gross domestic product, which may appeal to investors, but last week, the EU called on Hungary in its latest Spring forecast to present further steps to meet this target in 2014.
Fundamentals have changed little, however: the economy contracted last year by 1.7% and only a very limited growth can be expected this year, despite the government’s efforts.
The central statistics office will publish first quarter gross domestic product data on Wednesday, and analysts mostly expect the economy to continue shrinking.