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Hungary should still adopt euro, central bank 04 governor says The call is out for future-proof networks
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New fiscal adjustment package removes obstacles to IMF A new set of fiscal adjustment measures were announced on our deadline day. The following article was written before the announcement. For more details on the new austerity package, see page 4.
After a new fiscal adjustment package removed the main obstacles to the EU/IMF negotiations, the government launched an anti-IMF campaign in the Hungarian media. Despite the campaign and a series of anti-IMF comments by Prime Minister Viktor Orbán, the cost of insuring Hungary’s sovereign debt against default reached a new low for the year, indicating market optimism regarding agreement with the IMF/ EU. However, even after the IMF general meeting in Tokyo, chief negotiator Mihály Varga confirmed that there is still no date set for the next
round of the talks. In a HUF 200 million campaign, Hungary’s government placed full-page advertisements on the back pages of several dailies saying that it won’t give in to the IMF. Hungary expects “respect and trust”, and “we won’t give up Hungary’s independence” were among the slogans published under the heading of government information. Other messages contained rejections of measures allegedly suggested by the IMF for adoption, such as a property tax, or cuts in family benefits. Speaking at the Hungarian Permanent Conference, Or-
bán said that, like this year, Hungary would be able to ensure financing in 2013, even without an IMF agreement. A few days later he said in a radio interview that Hungary is not far from reaching a favorable agreement with the IMF. STRENGTHENING MIDDLE CLASS Orbán also confirmed that the government would announce a new action plan in 2013, targeting the lowermiddle class. He added that those with earnings between the minimum wage and HUF 220,000 (€770) a month have still not had a chance to “break free from their current predicament”. Fidesz parliamentary group leader Antal Rogán claimed that amendments to tax legislation unveiled by the economy ministry on October 12 would reduce the tax burden on the middle class by 4%. The new measures aim to improve the business environment by reducing administrative burdens and to strengthen tax morale. Eliminating the practice of
taxing the “super gross wage”, which means adding employers’ social contributions to the personal income tax base over a certain annual income, would stabilize the flat-rate personal income tax system. In addition, the new rules aim to establish a unified tax system, restructure the system of duties and encourage families through the tax system to have more children. ORTHODOX MEASURES As falling CDS spreads indicate, the assessment of the government’s new HUF 397 billion fiscal adjustment package announced on October 5 was rather positive. The measures are detailed in a report to the European Commission (EC) and the Council, presenting progress in bringing the excessive deficit situation to an end. Beside a lack of unorthodox measures, the decision that the financial transaction tax will no longer apply to the
National Bank of Hungary (MNB), which was one of the most crucial issues in the IMF/EU talks, was most appreciated by both the EC and the market. EC spokesperson Olivier Bally immediately welcomed the decision adding that the EC hopes “that it will be translated, without delay, into a proposal to change the corresponding law that will be adopted in the next days.” Furthermore, the new package has narrowed the gap between the macroeconomic projections of the two parties. According to the
The budget deficit targets for both years were raised to 2.7% of GDP from the previous 2.5% and 2.2%. According to the IMF’s World Economic Outlook published on October 9, Hungary’s economy will contract by 1% this year but grow by 0.8% next year. In the previous outlook, published in April, the IMF expected Hungary’s GDP to stagnate in 2012 and grow 1.8% in 2013. Orbán said in an interview on public radio station Kossuth that half of the HUF 400 billion fiscal improvement package would not be necessary if the European Union were not forcing it on Hungary. He claimed that the Commission did not think next year’s fiscal deficit would be under 3%, and if the government did not make changes to the budget, the EU would take away development funding to the value of several hundred billion forints. GL
ORBÁN PROMISES TO STRENGTHEN THE MIDDLE CLASS. government’s new macroeconomic prognosis, Hungary’s GDP is expected to fall by 1.2% in 2012 and grow by 1% next year, which is more realistic than the previous 0.1% and 1.6% projections.
Finding undiscovered stocks on the Budapest bourse Most investors tend to focus sentations were delivered by time in the history of such on the four or five blue chips the representatives of mort- BSE conferences, companies in the Budapest bourse, in- gage bank FHB, Egis, insurer from the CEE region includcluding oil and gas company CIG Pannónia, geothermal ing Telekom Slovenije Group MOL, OTP Bank, Magyar energy company PannErgy, and Slovenian pharmaceutiTelekom and pharcal producer KRKA maceutical producers AS INVESTORS FOCUS also participated in Richter and Egis. As the event. ON THE BLUE CHIPS OF a result, small- and Eddy D’Hertoge, mid-cap stocks with THE BSE, THEY MIGHT CEO of the Hungarsolid fundamentals ian branch of KBC and a good invest- OVERLOOK SMALL- AND Securities, pointed ment potential are MID-CAP STOCKS WITH out that small- and largely undiscovered mid-caps have always GOOD INVESTMENT by investors. In orbeen the drivers of der to get the story of entrepreneurship and POTENTIAL. these firms to a wider they form the base of audience, the Budapest Stock printing house Állami Nyo- every economy. That is the Exchange (BSE), in coop- mda, IT firm Synergon, ener- reason why supporting them eration with KBC Securities, gy supplier and trader Alteo, is so important for any govorganized a small- and mid- building materials company ernment. He added that these cap conference named Value Masterplast and investment firms are “the nursery of the Hunting on October 11. Pre- company Altera. For the first future Apples and Googles”,
both of which started as SMEs and were listed through their local exchanges. Traditionally, Hungarian SMEs are undercapitalized and have little chance to get access to capital, said D’Hertoge. As financing through the capital market would be an ideal solution, the BSE together with investment banks are eager to support them and to bring more issuers to this market. Thus, issuers will have easier access to capital and investors can invest in a wider range of companies, which will increase the liquidity and the development of the Budapest bourse. Furthermore, the BSE is an ideal place for exits from investments made by JEREMIE
funds and also for providing capital for further growth. Despite declining share prices and the difficulties of the current Hungarian macroeconomic environment, it is still possible to find attractive investment targets on the Hungarian bourse, KBC Securities equity analyst Péter Szentirmai told the conference. Among small- and mid-caps, his current favorite is Állami Nyomda due to the company’s stabile finances and strong cash-generating potential. He stressed that this is especially important in a business environment, where both capital and bank financing is practically unavailable. Furthermore, the stock provides a 3-4-per-
centage point dividend yield premium over Hungarian risk-free yields. The analysts warn that with deteriorating market sentiment, the increase in the yields on Hungarian assets could lead to a decrease in interest premium without a decrease in the stock price. Other attractive investment targets are, according to Szentirmai, Masterplast and PannErgy due to their long-term growth story. Masterplast has a relatively small exposure to the Hungarian market as domestic sales account for only onequarter of total revenues. In addition, export sales are highly diversified throughout the regio. GL