BUX up on Richter, expectations for easy money


The Budapest Stock Exchangeʼs main BUX index finished up 1.99% at 22,057.82 Wednesday after rising 0.22% Tuesday. It is up 32.61% from year-end, after losing 10.40% last year.

After days of lacklustre performance, the Budapest main index shot up on better than expected results from drugmaker Richter, and on expectations that new stimulus from the National Bank of Hungary (MNB) might blow asset prices. This outlook also raised volumes, a rare occurrence in the Budapest bourse where rises happen more often than not in cautiously small turnover.

Tailwind from Western markets on stable, albeit smaller than expected, private economy growth in the euro area in October shown in PMI figures on Wednesday also helped as the data boosted well-anchored hopes for more easing by the European Central Bank in December.

The MNB unveiled a new corporate lending incentive programme focusing on small and medium entreprises once more on Tuesday, and at a press briefing on Wednesday its deputy head re-emphasised that the central bank intends to use non-conventional tools in the future to ease monetary conditions.

While easy money and even money printing by the ECB and zero rate special financing from the MNB have so far both proved to be stubbornly ineffective in giving a palpable boost to the real economy and lending, with corporate loan stock in Hungary constantly falling for years, investors reckon that more easy money should also find its way, as it has in the past, rather directly into asset markets to inflate prices there than into the real economy where return on capital invested is meagre or non-existent in view of subdued domestic demand and low interest rates that tend to become negative, also limiting banksʼ resources for lending, analysts add.

With its latest set of incentives to boost lending to the corporate sector, Hungaryʼs central bank is ignoring the fact that there is a lack of demand, Nomura said in a note on Wednesday. The central bank "is fighting a war it cannot win unless investment is directed in productivity-boosting ventures and a spark is ignited for banks to lend without central bank incentives," Nomura said.

Hungaryʼs central bank is urging Hungarian banks to lend more to small firms in an effort to spur growth, but the banks face a daunting task as there just is not much demand, UniCredit also said. If banks borrow under the central bankʼs new subsidized program but then can not make the loans, they will have to return the subsidies, which will tighten their liquidity already in early 2017, he says. Further monetary easing at a time when risk appetite remains volatile (in the real economy) will increase financial system risks, UniCredit added.

Richter announced a 21% annual rise in net earnings in the third quarter on Wednesday, mainly on a one-off milestone payment related to the approval by the US FDA of an antipsyhotic drug, and lifted its annual revenue guidance to stable from fall despite on-going worries for the companyʼs Russian and Ukrainian markets, partly compensated by China. It also confirmed that its traditional practice to pay out one-fourth of its after-tax profit in dividend to shareholders was intact.

Magyar Telekom fell back in final trades shortly ahead of its results from the third quarter as analysts expected an almost 13% annual drop in after-tax profits.

Meanwhile, newspaper reports said Hungaryʼs government could draft legislation in the next two weeks setting a minimum staff requirement for shops over 400 sqm. This has given new food for thought to investors as how far the government was still ready to go in meddling into private business affairs, and as to how much the measure would pressure wages, although low wages have been a main drag on Hungaryʼs economy.

In the first nine months, the number of building permits for homes in Hungary increased 24% compared to a year earlier, while the number of homes built fell 9.5%, official statistics showed on Wednesday, suggesting that households financial ability to carry out plans narrows. While in the third quarter building activity remained stable compared to the previous quarter, the number of building permits started to decrease.

OTP rose 1.09% to HUF 5,570 on turnover of HUF 5.76 bln from a preliminary HUF 14.48 bln session total, more than 60% above the daily average this year.

MOL gained 3.12% to HUF 13,200 on turnover of HUF 2.13 bln.

Magyar Telekom shed 0.25% to HUF 392 on turnover of HUF 759 mln. 

Richter advanced 3.24% to HUF 4,877 on turnover of HUF 5.77 bln. 

The bourseʼs mid-cap BUMIX went out 0.04% higher at 1,596.21.

Elsewhere in the region, WIG 20 in Warsaw was up 0.08%, while Pragueʼs PX raked up 0.07%.

Western Europeʼs major indices were mixed ahead of their close on Wednesday, with FTSE100 in London up 0.55%, DAX30 in Frankfurt down 0.88c, and CAC40 in Paris up 0.34%.

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