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JP Morgan keeps “medium-term constructive view” on Hungary

JP Morgan has reduced exposure to Poland and Hungary in its global emerging markets model portfolio, a move reflecting fears of potential contagion should the situation in Greece and “eurozone periphery countries” deteriorate further, the US banking group's London-based analysts said.

In its Emerging Markets Today research note released to investors, JP Morgan said, however, that its “medium-term constructive view” on Hungary and Poland remains unchanged. The bank's analysts said recently that Hungary's fiscal consolidation efforts seem to be the best example that Greece should follow.

In November 2009 it recommended a small overweight, arguing that Poland would benefit from a solid cyclical recovery. For Hungary it argued that its credit spread did not yet reflect the improvement in fundamentals and reduced downside risk to the forint.

“Our country-specific macro views have been tracking well ... Polish GDP growth accelerated to an above-consensus 3% (year-on-year) in Q4 2009, (and) fiscal newsflow has surprised positively,” JP Morgan said on Tuesday.

Hungary, meanwhile, is on track for a full-year 2009 current account surplus and continues to make good progress on fiscal consolidation after reporting a below-target fiscal deficit for last year, it added.

Yet, with EM investors taking risk off the table due to rising Euro area sovereign risk, “we believe that a marketweight allocation for Polish and Hungarian external debt is more appropriate until conditions for risk markets improve.”

The bank's analysts said recently that Greece should follow the example of Hungary's fiscal consolidation efforts. In a note released after Greece, a eurozone member, was downgraded last month from the coveted “A” rating band by Fitch Ratings to the higher-yielding “BBB” category, JP Morgan said that the path of Hungary's cyclically adjusted primary deficit implies an average improvement of 3 percentage points per year over three years – “probably the most ambitious fiscal adjustment in Europe” – and it is “roughly the magnitude of tightening Greece needs to engage in.” (MTI – Econews)