Analysts increasingly expect Central Europe to benefit from capital outflows from Asia. Worries over Chinaʼs economy and markets have knocked down assets in emerging markets that have close links with China or are hurt by a fall in commodities prices, but neither is true for emerging Europe.
A bomb attack in Bangkok on Monday, apparently aimed at the tourism sector, also underlines that Central Eastern Europe is safer than other emerging areas, Commerzbank said in a note on Tuesday.
“With Latin America also exposed to China on the macro front and oil prices holding down, core and periphery CEE have suddenly gained safe-haven status, as the latter also benefits from the latest Greek bailout package deal,” Commerzbank said, maintaining its recommendation for Hungarian, Romanian and Serbian eurobonds on overweight and raising Hungarian forint and Romanian leu bonds to overweight.
Rabobank also said that Central European currencies are becoming safe havens as the region is less vulnerable to gradual yuan depreciation amid Chinaʼs economic slowdown. For those who intend to reduce exposure to emerging markets in Asia, Poland and Hungary are relatively attractive options, it said.
Bank of America Merrill Lynch also remains bullish on the forint, but warned that as inflation will accelerate in Hungary from the fourth quarter onward, reaching around 2.5% in the first quarter of next year, “deep negative real interest rates” will set in. Hungaryʼs main rate is at a record low 1.35%.
Local traders add that the waiting for the Fed rate hike partly offsets the “safe haven” effect as any US rate rise will make lower-rated CEE assets less attractive. As to illustrate this, while the Hungarian currency firmed versus the euro which fell in dollar terms, it also lost some ground against the dollar, after the shock of a plunging Fed New York State manufacturing index published on Monday became history, and good US home construction figures on Tuesday reinforced bets for a September tightening in the US.
The Hungarian government sold HUF 45 bln worth of three-month Treasury bills at an auction on Tuesday, HUF 10 bln more than planned on large demand, with falling yields.
The forint traded at 280.02 to the dollar, down from 279.18 in final quotes on Monday. On Tuesday, it moved between 278.48 and 280.28, after a five-day low at 281.14 Monday intraday, and a nearly tow-week high at 277.15 late last Thursday and again late Friday.
It was quoted at 286.26 to the Swiss franc, down from 285.23 late Monday. Its range on Tuesday was 285.05 to 286.76, after a five-day low at 287.42 late Monday, and a four-month high at 284.24 late last Thursday. Since its crash to an all-time low at 378.49 on January 15 when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26.
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