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Euro elections outcome not a major market mover, says City

The outcome of Hungary's European Parliamentary elections will likely prove largely market neutral as there have been no major surprises that would potentially trigger a large-scale downside knee-jerk reaction, London-based emerging markets analysts said.

Juliet Sampson, Central European economist at HSBC in London, told Econews she saw a “somewhat subdued” market reaction going forward, because there is “nothing too unexpected” in the results and the outcome “doesn't mean too much” to the economy locally.

Any “panicky sell-off” is usually associated with uncertainty and unanticipated events, and “I don't think that what we're looking at was unanticipated ... and there is not a lot of uncertainty.”

Asked about any potential monetary policy impact, she said that it is not in the central bank's remit to take these sorts of political situations into account and “I don't think that they would ... they have to focus on the economy and they've got plenty to think about without having to think about politics as well.”

Asked about the possible impact of an early election, Sampson said that any government would face constraints similar to the ones that are faced by the current government. Political disruption does have an impact on markets to some extent, but because it wouldn't change the economic calculations, “I don't think it would have a critical impact on markets one way or the other,” she added.

Wood & Co., an investment company focusing on Central and Eastern Europe said in a research note that although the MSzP lost 50% of the seats in the European Parliament relative to the 2004 elections, this was in line with expectations. “We maintain the view that the most likely scenario is that the Bajnai government will remain in power until next spring, a key factor for the stability of the forint, although speculations of a fallout are likely to increase in September-October when the government starts debating the 2010 budget.”

The strong performance of Jobbik is “somewhat concerning.” Given that Jobbik and Fidesz have a similar support base, this outcome increases the likelihood that Fidesz's rhetoric will remain populist and generally vague on key policies, such as the fiscal deficit outlook, until the 2010 elections are over, Wood & Co. said. (MTI – Econews)