BUX rises cautiously

Telco

The Budapest Stock Exchangeʼs main BUX index finished up 0.47% at 22,077.64 Wednesday after falling 1.15% Tuesday but stopped short of its latest nearly four-year closing high on Monday. It is up 32,73 % from year-end, after losing 10.40% last year.

After Tuesdayʼs negative correction which snapped a six-day rally of more than 13%, investors on Wednesday bought back most of the blue-chips except OTP -- with Magyar Telekom turning into red in final trades only -- but the mood in the market remained cautious.

Hungaryʼs government and Bank Association face disagreement over how to tackle the big deficit at Hungaryʼs investor protection fund BEVA (caused by the increase of the compensation threshold by law for clients of a failed local brokerage, Quaestor), Economy Ministry state secretary Gabor Orbán said on Wednesday.

"The challenge with relation to the agreement between the government and the Bank Association stems from the situation of BEVA. In this debate the government will strive to avoid the outcome of this debate posing any threat to the agreement with EBRD and Erste," Orbán added.

Signed in February, the Hungary-EBRD-Erste Bank agreement involved the government and EBRD taking equal minority stakes in Ersteʼs Hungarian unit, a government pledge to reduce the special bank tax from next year, and an understanding that Hungary would refrain from new laws or measures that may have a negative impact on bank sector profits.

Orbán also said the government would decide on legislation on the planned bank tax cut next week.

But Hungarian banks may say no to boosting lending as a result of rising charges following the countryʼs brokerage fraud scandal, Nomura said in a note on Wednesday. "Although it is standard practice that the rest of the banking system backstops protection funds, itʼs unclear why any payments should be due from, say, OTP Bank, to (the protection fund) BEVA to compensate for losses of non-deposit investments for richer households, where there were clearly regulatory failures and a complex mesh of political involvement". The government may use the higher indemnity requirement "as a stick to beat the financial sector with and...to offset planned lower corporate tax," Nomura said.

Hungaryʼs "banking sector can not be regarded as a realistic option when talking about engines of economic growth," Nomura added.

Other perplexing news of the day included fresh statistics on slowing construction output growth in February and steep falls in new orders and work to be done, and a suspension by the European Commission of HUF 700 bln in Hungaryʼs funding under the economic development operative program because the EC found fault with the selection process during the 2007-2013 budget cycle. The government reckons that while no current development project needs to be halted, up to 10% of the EU money would be redirected.

OTP fell 1.23% to HUF 5,788 on turnover of HUF 5.00 bln from a HUF 9.96 bln session total, broadly in line with the daily average this year.

MOL gained 2.57% to HUF 14,965 its highest close since October 30, 2013, on turnover of HUF 3.66 bln.

Magyar Telekom lost 0.23% to HUF 425 on turnover of HUF 190 mln.

Richter advanced 0.89% to HUF 4,285 on turnover of HUF 998 mln.

The bourseʼs mid-cap BUMIX went out 0.93% higher at 1,581.76.

Elsewhere in the region, WIG 20 in Warsaw was up 1.48%, while Pragueʼs PX sank 0.23%. Western Europeʼs major indices were all up ahead of their close Wednesday, FTSE-100 in London 0.36%, DAX30 in Frankfurt 0.26%, and CAC40 in Paris 0.76%.

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