BUX weak but outperforms

Further hefty gains of electricity distributors ELMU and EMASZ helped underpin the main index after the government said on Thursday it would buy additional stakes in both local power units of German energy company RWE which holds about 55% in them. Of the two, EMASZ is in the BUX basket with a low weighting.

Meanwhile, a mix of soothing words from the government, a measure of doubt by investors, and new ideas of the central bank to further regulate lenders kept the BUX in a narrow range around breakeven throughout the day before it turned definitely red towards close.

National Economy Minister Mihaly Varga played down on Friday possible spillover risks from Greece potentially leaving the euro zone, and said Hungary had room to cut interest rates further as the global market backdrop is supportive and the forintʼs exchange rate is stronger than the level projected in the this yearʼs budget.

But Bank of America Merrill Lynch said in a note there were risks to its Hungary growth call after falling first-quarter fixed-capital investment data. This could be due to some slowdown in EU fund absorption but also suggests that private investment outside EU fund projects is still quite weak, BofAML said. Its comments were underlined on Friday by more data showing producer price deflation still deep in April, receding on annual basis from March but deeper than a year ago, and reappearing month-on-month after a week inflation in March.

Also on Friday, the National Bank of Hungary (MNB) conceded the corporate lending portfolio had still not started to grow in Hungary. It in fact declined in April by HUF 20.0 bln in seasonally adjusted terms and by HUF 25.5 bln in seasonally unadjusted terms due to transactions, while bond stock of the corporate sector held by credit institutions also fell.

In its latest Financial Stability Report also put Friday the National Bank of Hungary (MNB) said the financial systemʼs vulnerability has decreased as a result of household forex mortgagesʼ conversion into forint debt, but forex-denominated car loans and personal loans still pose a serious contagion risk, and non-performing loan rates are also dangerously high, which "all require regulatory intervention." To mitigate systemic risks, the MNB is considering introducing "macroprudential tools" that would give lenders an incentive to convert remaining forex loans by making it more expensive to hold them, according to the report. The MNB also said it prefers legislation to voluntary conversion of the remaining forex loans.

The MNB welcomed that Hungarian banks had a HUF 62.8 bln combined profit in the first quarter with 108 of the 156 lending institutions being profitable, after a combined record loss of HUF 506 bln over last year. But analysts added that first quarters are generally good in the sector, however the recent combined profit is 10% less than a year ago, and net interest income fell 19%.

Magyar Telekom was supported by news that it would receive a dividend of about EUR 16.5m from its unit in Montenegro, but profit taking in last minute trades wiped out its gains.

MOL lost out on lowering its weighting in the MSCI Hungary index.

OTP fell 0.51% to HUF 5,700 on turnover of HUF 5.01 bln from a HUF 15.15 bln session total, about a half above the daily average this year.

MOL dove 1,24% to HUF 14,715 on turnover of HUF 7.79 bln.

Magyar Telekom ended flat at HUF 416 on turnover of HUF 453m.

Richter advanced 0.77% to HUF 4,600 on turnover of HUF 1.70 bln.

The bourseʼs mid-cap BUMIX went out 0.98% higher at 1,599.77.

Over the week, the BUX was up 0.85% after falling 0.91% the previous week.

OTP recovered 1.06% after tumbling 5.37% last week.

MOL dipped 1.90% after gaining 0.33% the previous week.

Magyar Telekom was off 0.95% after losing 0.24% last week.

Richter added 0.99% to a win of 4.00% over the previous week.

The BUMIX rose 0.26% after easing 0.84% over last week.

Elsewhere in the region, WIG 20 in Warsaw was down 0.14%, while Pragueʼs PX fell 0.36%. Western Europeʼs major indices were all down ahead of their close Friday, FTSE100 in London 0.21%, DAX30 in Frankfurt 1.81%, and CAC40 in Paris 1.91%.