Hectic markets, trade wars, deteriorating macroeconomic data, and exchange rate fluctuations; it is as if the past few months have brought nothing but uncertainty and high risk. But when it comes to stocks, the performance of listed companies doesn’t always correlate with the macro data; moreover, many things may improve in the second half of the year.

BBJ: Recently, domestic indicators have been weak, with industrial output and retail sales declining, inflation rising, and GDP growth in the first quarter far from outstanding. In this situation, is it better to invest domestically or abroad?

Péter Vince: I view these data differently as an everyday individual and as an investor. As an employee, you care about the state of the industry and consumption because it affects your daily life. However, for an investor, these have a much smaller impact, since, ideally at least, their portfolio doesn’t consist solely of Hungarian assets.

Inflation might be the exception, as it significantly determines the purchasing power of the forint. But as an investor, there’s no need to worry just because the GDP didn’t perform well in Q1, or even if it underperforms in Q2, because we know the BUX index has reached historical highs even when real economy indicators were weak.

This doesn’t influence the Hungarian stock exchange. It doesn’t depend on industrial or consumption data but rather on the performance of four or five companies that make up the bulk of the BUX index. If OTP, MOL, Richter, and Telekom perform well, investors with Hungarian stock exposure will do well, even if the overall economy doesn’t.

BBJ: Someone who hasn’t yet bought securities might fear losing their savings but understands that risk is involved. What level of risk should one expect if things go poorly?

PV: I’d frame the answer historically. During the COVID-19 period, someone holding only stocks saw about a 30% drop in value. In 2022, stockholders saw a 20% or slightly greater drop. In April of this year, during the U.S. “Liberation Day” period, investors in U.S. markets experienced a similar decline. However, these figures apply to people who hold only stocks, which is the riskiest type of investment. We generally don’t expect larger losses than that. And I don’t think we should now either, because there’s no scenario in the near future that’d justify such a large and sudden drop.

However, someone with a balanced, diversified portfolio consisting of multiple asset classes has much less to worry about, even if equity markets decline. In that case, the worst-case scenario would be around a 10–11% drop. Anyone who knows they’d panic and withdraw their money after a 10% loss would be better off choosing more protected products, such as government bonds.

BBJ: Is gold always a win?

PV: Many people consider gold a safe asset, as it has historically served to preserve real wealth, but gold is actually a very risky asset. If you look at its chart, it shows nearly the same volatility as certain stock markets.

Gold’s role lies in complementing a portfolio of risky assets, such as stocks, to improve the overall return-risk profile because gold’s value doesn’t move in tandem with those assets. When other markets are in trouble, gold can help protect your portfolio. It’s true that gold has generated significant returns over the past year. But we always say: ‘Don’t buy it just to get rich off it.’

BBJ: So what should we invest in? What are the categories worth getting into right now?

PV: The first and most important piece of advice is to have a bit of everything. Ensure diversification first, and then you can adjust how much of each asset you hold and modify the proportions as needed.

Currently, we view the Central European stock market as promising, so it could be overweighted in a portfolio. Another example would be international bonds linked to inflation.

In the short term, it’s hard to say what will perform well because there’s a lot of market noise, partly driven by U.S. politics and partly by geopolitics. In the long term, it’s somewhat easier because we can make decisions based on market pricing and valuations. Roughly 70-80% of a 10-20-year investment return is determined by how cheap or expensive the market was when you entered.

BBJ: The U.S. market appears quite turbulent right now due to tariff policies. The administration announces new tariffs, modifies existing ones, or re-negotiates almost daily. When do you think this might stabilize, so that everyone can see what to expect?

PV: I believe this will happen by the end of this year. I wouldn’t predict that it will settle already in Q3 or Q4, but there’s a chance by year-end.

There’s a reason for that: this uncertainty doesn’t benefit Trump, and it doesn’t help America either. What we’re seeing is more of a negotiation strategy, one that maintains uncertainty. You “kick down the door” with a strong message and then use the momentum to negotiate a favorable deal. However, you can’t drag that out forever because there are negative consequences. It makes planning impossible, and that particularly affects corporate investments. That could act as a constraint for Trump: if he doesn’t want companies to indefinitely postpone investments, or for volatility to persist (which also makes financing the U.S. state harder due to higher yields), then he will eventually need to bring it to a close.

And we are already seeing deals being made: there’s an agreement with Vietnam, and a framework was reached relatively quickly with the United Kingdom that could serve as the basis for a deal. More such agreements are likely to come this year, which will help. I believe this will support a more positive mood in capital markets.

This article was first published in the Finance Business Review print issue of 2025.