Central Europe’s stock rally is set for ‘a pause’ as the economic slump cuts earnings, particularly in Hungary, where the central bank may need to raise interest rates to bolster the currency, Citigroup Inc. said.
“With a worst-case scenario averted, the focus returns to economic fundamentals, which remain challenging,” Andrew Howell, an emerging-markets strategist at Citigroup in New York, wrote in a research note dated Wednasday. “The earnings growth outlook has deteriorated more in central and eastern Europe than in the emerging markets overall.”
Hungary’s economy is the weakest among the region’s biggest countries because of foreign-currency debt, said Citigroup, which rates the stocks listed in Budapest as “underweight,” meaning investors should hold a smaller proportion of assets from that country than are represented in benchmark indexes. (BBJ, Gazdasági Rádió)