Hungary sees appreciation over May-December 2013, says Nomura

“With advanced economy central banks preparing to drain the punch bowl, we take a look at how the vulnerabilities of individual EEMEA countries have evolved since the taper tantrum in 2013 [when the Fed tapered off QE]. External balances are in better shape pointing to reduced vulnerabilities for the region as a whole,” Nomura says.

On the reserves front, Hungary has seen the largest fall in reserves, of around a third, but this has paralleled the unwinding of FX mortgage FX swaps. Absolute levels of reserves (in % of GDP and vs. short-term external debt) are now much more in line with those of Hungaryʼs peers and are comfortable, the analysis adds.

When it comes to inflation, CEE countries may be most exposed if the eurozone real rate move continues to lead that of the United States. “These markets are also more liquid and easier to sell, though they are generally more underweight positions (for low beta CEE) than the high beta likes of South Africa, Turkey and Russia,” Nomura says. However, with the exception of Hungary, the core story is stronger and central banks look ready to hike, as they are seeing meaningful growth, leveraged by EU structural funds that may ultimately be a saviour.