BUX corrects down from peak, Richter hit by profit taking

While euro zone markets put in another day of lacklustre performance, the Budapest main index corrected down from its latest nearly four-and-a-half-year high on Tuesday, the fifth within two weeks.

Caution was vindicated by minutes of the last policy meeting of the National Bank of Hungary (MNB), published on Wednesday, which reminded investors that third-quarter economic growth in Hungary lagged expectations, and confirmed public investments should fall.

"Government investment was likely to fall as funding from the EU declined considerably, the impact of which was expected to be offset by the gradual pick-up in private sector investment and the Bank’s Growth Supporting Program," the MNB said.

Citigroup projects that the regionʼs growth will weaken in 2016, and Hungaryʼs net EU transfers are likely to halve next year to 3% of GDP.

Recent central bank figures showed measures by the MNB have not yet been successful. Banksʼ corporate credit stock, including bonds, grew 2.4% by the end of October from end-September, after falling 0.6% in September, but it was down 6.3% from the end of last year, down 5.6% from a year ago, down 9.4% from two years ago, down 9.7% from three years ago, down 18.2% from four years ago, and down 15.6% from five years ago.

Banks say it is not their willingness to lend that is low, but that of corporate clients to borrow because of dim economic prospects and high taxation which leaves companies with few means to repay loans.

With market-based loans unaffordable for most companies, mainly for SMEʼs that took out about 17% less new loans even under the MNBʼs preferential Funding for Growth Scheme(FGS) this year than in the first eleven months of last year, and public financing becoming scarce for companies, food for thought was also provided to market players by legislation on Tuesday that apparently opens up new avenues to market-bending economic corruption, analysts add. The law on public procurement was amended to allow relatives of government members to participate in public procurement tenders if they live in separate households. Previously, relatives were excluded regardless of their residence.

OTP Bank outperformed on newspaper reports that Hungaryʼs government will discuss new legislation that may reduce the compensation bill banks face from the bailout of clients of Quaestor, a local brokerage that failed early this year. Hungaryʼs Constitutional Court last month annulled parts of a law that required banks to pay billions of forints to bail out clients of the failed brokerage. The government has said it would propose an amendment to the legislation to bring it in line with the courtʼs decision.

Oil company MOL fell after its Croatian subsidiary, INA, said it signed a USD 300m long-term multicurrency revolving credit facility agreement.

Drugmaker Richter corrected further down in quick profit taking from an all-time high it reached on Monday.

OTP won 0.62% to HUF 6,158 on turnover of HUF 4.97 bln from a preliminary HUF 9.66 bln session total, slightly above the daily average this year.

MOL fell 0.26% to HUF 13,550 on turnover of HUF 736 mln.

Magyar Telekom ended flat at HUF 404 on turnover of HUF 126 mln. 

Richter retreated 2.93% to HUF 5,400 on turnover of HUF 3.79 bln.

The bourseʼs mid-cap BUMIX went out 0.17% lower at 1,620.86.

Elsewhere in the region, WIG 20 in Warsaw was down 1.96%, while Pragueʼs PX dropped 1.00%.

Western Europeʼs major indices were mixed ahead of their close on Wednesday, with FTSE100 in London up 0.53%, DAX30 in Frankfurt down 0.48%, and CAC40 in Paris down 0.03%.