BUX volatile on Western markets, domestic anxieties


The Budapest Stock Exchangeʼs main BUX index finished up 0.43% at 22,195.34 Tuesday after rising 0.99% Monday. Is up 33.43% from year-end, after losing 10.40% last year.

After two days of strong rises, the Budapest bourse corrected down for most of the day, emerging above the waterline only in last trades, while European markets fell on new signs of economic slowdown, while a widening of its quantitative easing programme the ECB hinted at last week is at least more than a months off, if it ever comes about at all.

On the domestic turf, the National Bank of Hungaryʼs (MNB) deputy governor, Marton Nagy, discouraged investors by saying in a news portal interview that the MNB also wanted to support the development of the economy by acquiring a majority stake in the Budapest Stock Exchange, a deal it expects to close within weeks, and by fostering the listing of state-owned companies as well as small- and medium-size enterprises.

In such a chronically low-volume market as the Budapest bourse, a sudden large increase in offer, especially and probably complete with some kind of investment-guiding into state owned companies on the example of investment-guiding into government bonds by MNB policies, can cause price falls to incumbent blue chips, while small shares are highly volatile as large swings of the BUMIX index often show, analyst say.

The MNB deputy governor also said the central bank might keep its base rate at the present record-low 1.35% until 2018 or even 2019, beyond its horizon for monetary policy, and even if inflation accelerates to its target. Not raising rates as inflation accelerates would mean giving Hungary negative real interest rates, which "are not just an opportunity, but something that must be taken advantage of" in order to help close the negative output gap, Mr Nagy said.

He also said the central bank, which has stressed that local banks should lend more in return for a reduction in a punitive bank tax starting next year, would offer a set of incentives next Tuesday to boost lending to companies.

The deputy governor has thus given investors a real lesson to muse on, as there is no international evidence so far that experimenting with negative rates or negative real interest rates could in effect boost the economy, while this policy is heavy with about as much downside risks in scaring off savings, interbank lending and investments as with perceived upsides in prompting market demand. It can play havoc in the financial system while its positive effects, if any, are yet to be seen.

Analysts point out the state of affairs in developed economies illustrates that low interest rates, and, hence, negative rates are not stimulating the economy because while they may encourage people and businesses to borrow money, they discourage those same people and businesses from saving and/or investing money into the real economy as long as return on capital employed remains negative.

Negative real interest rates are just another way to expand extra-budget income redistribution as negative real rates redistribute wealth from savers and investors to debtors. While it may help governments the reduce the burden of debt financing, the partial debt-forgiveness given to all debtors might backfire in discouraging lending in the long term, analysts add.

BUX was saved mainly by Magyar Telekom which corrected slightly up after diving 4.26% in the previous two-weeks, and by drugmaker Richter which serves as a safe haven in volatile times. Also, the government said on Tuesday it would raise drug subsidies still this year by HUF 30 bln.

Last, upwardly correcting trades might have also been helped by some hopes for an as yet undetailed government economic stimulus program, advertised in broad lines by the economy minister on Tuesday.

OTP raked up 0.03% to HUF 5,742 on turnover of HUF 3.41 bln from a preliminary HUF 8.81 bln session total, almost in line with the daily average this year.

MOL fell 0.19% to HUF 13,200 on turnover of HUF 414 mln.

Magyar Telekom rose 0.52% to HUF 384 on turnover of HUF 756 mln.

Richter advanced 1.68% to HUF 4,850 on turnover of HUF 4.17 bln.

The bourseʼs mid-cap BUMIX went out 0.36% lower at 1,600.29.

Elsewhere in the region, WIG 20 in Warsaw was up 0.05%, while Pragueʼs PX shed 0.13%.

Western Europeʼs major indices were all down ahead of their close on Tuesday, FTSE100 in London 0.80%, DAX30 in Frankfurt 0.92%, and CAC40 in Paris 0.93%.

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