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Analyst says Templeton’s debt sales not yet a problem

Time should tell whether the asset manager holding most of Hungary’s government securities is selling because of concerns about the Ukraine situation rather than something more specifically Hungarian.

The May 6 announcement that emerging market specialist Franklin Templeton Investments, an asset manager that is the largest holder of Hungarian debt, had shed roughly 20% of those holdings in a short time caused some concern, but according to an analyst, it is still too early to panic.

When György Barcza, head of the Government Debt Management Agency announced the large sale of Hungarian government securities by Templeton on state television, he implied that much of the sales had taken place in the first quarter of this year.

CIB analyst Mariann Trippon told the Budapest Business Journal that Templeton might simply be seeking to reduce its exposure because of concerns about Ukraine. If that is the case, it would mean that the asset manager is not planning to abandon Hungary.

No concern for now

Either way, she said, there is no reason to be concerned – right now. “On the one hand it is unfavorable, as it is not optimal if government securities are owned by one entity, because if they sell this can cause market tension,” Trippon said. “On the other hand, because it is such a large player on the market, it cannot sell its own government securities all at once, as this would cause it serious losses as well.”

She added that, thus far, Templeton seems to be alone in its heavy selling. “Government securities owned by foreigners declined slightly, but we do not see a significant decrease at the moment; as such, those securities that were sold were partly absorbed by other players,” Trippon said.

She believes that the following months will reveal how the expected worsening of the external environment will affect the Hungarian government securities market. “We do not expect the collapse of the market in the coming months, but record-low yields would be impossible to maintain,” Trippon added.

For the long-term, she said, it would be good if a more diverse group held government securities.

“It is the state’s aim to strengthen internal financing, in other words to distribute state debt among domestic players such as households, companies and banks,” Trippon said.