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BUX down on EC forecast, loan conversion uncertainty, fair banking plans

MNB

The Budapest Stock Exchange's main BUX index finished down 1.12% at 17,156.31 Tuesday, after rising 0.17% Monday. It is down 7.58% from the end of last year, after it rose 2.15% in 2013.

The European Commission's GDP forecast for next year for Hungary, published on Tuesday, was in line with the Hungarian government's target, but the commission penciled in a much larger general government deficit -- although still under the 3% to GDP threshold -- than forecast in the government's budget bill.

Commenting on its deficit forecast, the commission said "further uncertainties stem from the balance of local governments, as well as from the timing and magnitude of the potential financial corrections of EU funds," pointing to possible infringement fines.

Based on structural deficit forecasts of the commission, analysts say a renewal of the extensive deficit procedure against Hungary can not be excluded either, although the forecast had been prepared before Hungary's budget bill for next year was published.

The commission also sees several downside risks to economic growth, including the Ukraine-Russia conflict, and meagre demand in Hungary's export markets.

Pressure on Hungary from the EU and the US is likely to continue in 2015 as "the Orban administration has come under repeated external scrutiny due to its still rather cooperative stance toward Russia compared to most of its EU peers, and the administration's consolidated power relative to other parties," a note of from Bank of America Merrill Lynch said on Tuesday, although it added that the pressure will likely "have a limited impact on Hungary's fundamentals" in 2015.

Investors also considered that the Hungarian central bank's bar is high for resuming its easing cycle and will not do so unless "the ECB gets it badly wrong", as another paper of Bank of America Merrill Lynch noted. Hungary probably must resign to the "Lending for Growth" scheme, extended last week until the end of next year, of the central bank, which Bank of America Merrill Lynch termed "effectively a new monetary stimulus."

Uncertainty remained in place after the Hungarian economy minister said the conversion of retail forex loans into forint debts will take place at an exchange rate yet to be decided by the government, while conversion at market exchange rates is an option. Investors earlier expected the government to reveal on Tuesday details of the plan, including the timing and the conversion rates. The next target date is Wednesday, after a government session.

Fair banking in Hungary would oblige banks not to change retail loan interest rates but once in every three years, and clients could cancel loan contracts free of charge after every three years, too, parliamentary chief whip of the ruling Fidesz part, Antal Rogan, said after a session of Fidesz MPs on Tuesday.

Also on Tuesday the National Bank of Hungary (MNB) extended to EUR 9 bln from EUR 3 bln the amount from its international reserves which it could sell banks to meet their demand for foreign currency when they start converting retail forex loans into forint debts next year. Uptake by banks of the allotted amount has been weak so far. Hungary's international reserves stood at EUR 35.684 bln at the end of September.

Magyar Telekom rose after Hungary's prime minister, Viktor Orbán, told the press that he excluded the possibility of an internet tax next year. The government has already crossed the tax from next year's budget bill, but promised a "national consultation" on the matter, fomenting speculation that the subject would be revisited early next year.

Orbán also said he talked with the head of Deutsche Telekom, the parent of Magyar Telekom, about future infrastructure developments in Hungary, and added that Deutsche Telekom "is a key partner".

MOL was under pressure after another fall of free market crude prices.

OTP lost 1.74% to HUF 3,950 on turnover of HUF 2.58 bln from a HUF 4.04 bln session total, a hair less than half the daily average this year. MOL fell 2.04% to HUF 11,550, on turnover of HUF 644 mln. Magyar Telekom gained 0.88% to HUF 342 on turnover of HUF 320 mln. Richter retreated 0.39% to HUF 3,785 on turnover of HUF 406 mln. The bourse's mid-cap BUMIX went out 0.13% higher at 1,455.15.

Elsewhere in the region, Warsaw's WIG20 was up 0.02%, while Prague's PX sank 0.18%. Western Europe's major indices were all down ahead of their close Tuesday, FTSE-100 in London 0.63%, DAX30 in Frankfurt 1.00%, and CAC40 in Paris 1.66%.

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