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Gaudente

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Gaudente

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PORTFOLIO.HU | Hungary Fidesz more dramatic than a Greek tragedy - Is it just politics or more?
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Hungary Fidesz more dramatic than a Greek tragedy - Is it just politics or more?

2010-06-04 17:47:26
On Thursday afternoon market participants were astounded when they heard/read Lajos Kósa, Vice President of Hungary’s ruling Fidesz party, saying that the state of public finances in Hungary was so bad that the country only had a slim chance of avoiding a Greek-style scenario. His words were labelled as astonishingly negative statements by almost the entire analyst community and significant weakness in Hungarian assets ensued. Adding to the negative sentiment were negative comments regarding the budget situation from Prime Minister Orbán and State Secretary, Mihály Varga who said that he expected a budget deficit 7.0-7.5% of GDP in 2010. Hungary has made international headlines again - unfortunately.

Some of the headlines and quotes addressing Kósa’s statements:

The Next Greece? It's Hungary - The Street (Stock Quotes, Financial Market & Wall Street News |Personal Finance & Investing Advice | TheStreet.com)

"Politics is clearly playing a role here, with Fidesz trying to heap as much blame as possible on the outgoing Socialists. After taking power May 29, Fidesz is making it clear that the situation is not going to improve much for Hungary in the near term."

Kósa said that the government will unveil a two-year crisis management plan this weekend and may suspend some constitutional provisions to tackle the problems.

"This sounds ominous to us and underscores our belief that Fidesz' two-thirds majority in parliament is actually negative for the nation's outlook."

Kósa also said those countries tackled the crisis successfully that did not lean on IMF and World Bank support.

"We do not think Hungary can stand without IMF oversight at this point, especially with markets so wary of debt-laden European nations," an FX strategist at The Street said.

The Financial Times said "a new name also entered global debt consciousness: Hungary."

With regard to Kósa’s remarks the paper reminded that Hungary is the owner of a 78% debt-to-GDP ratio, noting that the forint declined as much as 2.4% against the euro yesterday.

"Spanish bond spreads remain very wide while the [European Union] rejected Hungary's pleas for permission from its creditors to maintain a wider budget deficit," wrote Kathy Lien, director of currency research at Global Forex Trading, in emailed comments to MarketWatch.

"This serves as a harsh reminder that the problems in Europe have not gone away. The euro will continue to fall unless we see additional action by policymakers," she added.

Bloomberg reported that the HUF weakened the most among world currencies after Kósa said Hungary was at risk of a Greece-like crisis and European Commission President José Manuel Barroso said it was in a "very delicate situation.".

"The Greek comments have clearly spooked the markets," Manik Narain, an emerging-market strategist at UBS AG in London, told the news agency. "Investors need a tight fiscal story to remain in Hungarian assets."

"What is needed now is quick remedial action by the government together with the European Union and the International Monetary Fund in order to calm the situation and gain the confidence of markets," Simon Quijano-Evans, head of emerging-market research at Credit Agricole Cheuvreux in Vienna, said in an e-mailed report.

Fidesz communication: plain stupid or what?

"It’s stupid communication from politicians," Bloomberg cited Michael Ganske, head of emerging markets in London for Commerzbank AG, as saying.

"It’s irresponsible in the current environment to say that 'look, we are just like Greece!’ What’s behind it, I don’t know. It doesn’t make sense."

Timothy Ash, CEEMEA specialists at the Royal Bank of Scotland in London, said today he is "not sure what the Hungarians are doing at the moment."

"I even avoid telling people that I had a Greek salad for dinner for fear that it might affect my credit rating. Likewise anything Greek related should be off the political menu in Hungary," Nigel Rendell, senior emerging markets strategist at the Royal Bank of Canada, told Portfolio.hu. yesterday.

From bad to worse

Péter Szijjártó, spokesman for PM Orbán has just added oil to the fire when he said today that Hungary’s economy is in a "grave situation" because the previous government "manipulated" figures and "lied" about the state of the economy.

"It was (Socialist) Prime Minister Ferenc Gyurcsány who spoke about a default about two years ago. Moreover, he was pounding his chest and was proud that he could only save Hungary from default by taking the IMF loan," he told a press conference early in the afternoon.

"From this aspect I do not think this (Kósa's comments) are exaggerated at all."

Meanwhile, he assured that Fidesz will not surrender its plans to reduce taxes, even if the budget deficit is about 7% of GDP, as Varga has indicated earlier.

Local markets reacted dramatically to Szijjártó’s remarks. The forint was quoted at around 287 to the euro at 13:30 CET, but it was even weaker at 288 not long before. The general index of the Budapest Stock Exchange (BSE) is falling hard. The spokesman’s comments sent it 4% lower in a matter of minutes and the BUX is currently down by 8.4% at 20,183 points. Investors are selling mostly OTP, and the banking stock plunged 15% to below HUF 4,614.
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Klikk a képre!

Unfortunately almost during the same time the press conference was going on the SNB has pulled its bids from 1.40 on EUR/CHF and hence the key CHF/HUF rate is now trading almost at last year highs around 210.

What the heck is Fidesz doing?!

"[...] the new government needs to think a bit more clearly about communication with the market," Ash at RBS warned, labelling Szijjártó’s comments as "dreadful".

"He reiterates that talk of default risks are not exaggerated, but goes on to argue that the government is not planning austerity measures...the message is not market friendly...it reminds me a bit of the crisis in Turkey in 2001, when President Sezer reportedly threw a copy of the constitution across the room, and came out of a meeting saying we have a crisis....they didn't until he made the comments...," Ash said.

"You simply cannot talk like this in these markets, when government officials start warning of the risks of default Fidesz is promising more detail on its economic anti crisis programme over the next 72H, but still seems to be holding to its pro-growth, tax cutting agenda," he added.

In his view, markets will be nervous as to how this squares with existing commitments to the IMF/EU to hold the budget deficit to around the 4% of GDP level.

"The comments are extremely confusing and more market panic should be expected," commented Elisabeth Andreew, analyst at Nordea in Copenhagen.

"At this stage, we don't know how severe the situation is. The most negative in our view is the government's way of communicating and that may cause further panic. Beware of more spill-over effects on other currencies and asset classes. Most stock markets are now in red," she added.

Preparing for back-paddling

Eszter Gárgyán, research analyst at Citi in Budapest, believes the change in government communication is likely to have been triggered Orbán’s meetings in Brussels with European Commission officials on Wednesday and Thursday, where the EU made it clear that there is no room to loosen up the current fiscal targets (3.8% of GDP for 2010 and 2.9% of GDP for 2011).

"Fidesz has always referred to the outcome of the Varga-led committee on the budget outlook as a key factor determining the room for fiscal manoeuvre, keeping the door open to step back from populist promises," Gárgyán said.

"Confusingly, their rhetoric on economic measures has turned more populist since the election victory, suggesting that large tax cuts may be imposed already in 2010, government subsidies may rise and the state may provide aid for insolvent households with FX debt," she added.

The analyst believes Fidesz’s comments about this year’s shortfall likely to come in between 5% and 7.5% of GDP "may well have been aimed at testing market reactions and the flexibility of the IMF and the EU."

Gárgyán does not believe the fiscal situation in Hungary is as bad as Fidesz is suggesting.

"We think the dramatic communication was likely aimed at domestic voters to prepare them for potential back-peddling on Fidesz’s populist pledges."

Financing need OK

According to the latest central bank (NBH) forecast (which has historically tended to be conservative in its assessment of the fiscal position), this year's deficit may reach 4.3-4.5% of GDP without one-off factors. These additional one-off risk factors include debt consolidation of state-owned enterprises and local municipalities and may add up to 1.5-3% of GDP, with limited direct financing needs.

Market expectations for the 2010 fiscal deficit range around 5% of GDP.

According to Citi’s calculations, the net financing needs of the government for 2010 can be covered from the government’s cash balance deposited at the NBH for this year, and a successful review of the IMF programme would make an additional EUR 5 billion of funds available, if needed.

Gárgyán believes the "EU is likely to be the stricter partner while negotiations with the IMF are likely to go more smoothly."

"A detailed package of structural reforms and the declaration of fiscal targets would likely be a positive surprise as recent communications have suggested that the government has yet to formulate a coherent economic strategy," she said.

The analyst expects that it may take a few more weeks until negotiations with the IMF end and the government discloses a detailed programme, but "market pressure may speed up this process."

"On a positive note, the EU/IMF and market reactions are likely to tie the government's hands and prevent the implementation of unsustainable policies."

Complete ignorance by Fidesz

"We believe today’s comments and the complete ignorance of the market reaction yesterday suggest that the new government is still unwilling to accept market reality but at the same time we do not think that they intentionally weaken the HUF," commented Gyula Tóth, analyst at UniCredit in Vienna.

"Unfortunately the market pressure will likely push them to the point to acknowledge the reality probably earlier than the government hopes given the move on CHF/HUF," he added.

While UniCredit will wait for the fact-finding committee’s report, in the meantime they will closely watch the CHF/HUF which "might trigger action even from the National Bank given its adverse impact on financial stability."

"It is not clear to us why the Fidesz is adopting such a communication strategy in a time when markets are extremely worried about fiscal balances (misunderstanding market dynamics is probably one important reason)," Tóth said.

"For the time being we remain payer of 5Y HUF rates," Tóth concluded.

Talks is cheap... or not?

György Barta, analyst at CIB Bank in Budapest, said: ""Talk is cheap" to markets and patience is running out, as markets prefer facts and figures over statements that are politically motivated."

Although he also awaits further clarification on the details of the planned consolidation measures, he believes that "it is wise to carry out groundbreaking structural reforms first as these could help maintain the market's hard-gained trust and would also boost competitiveness in the longer term."

In Barta’s view, the moves would also create room for further monetary easing and, in the medium term, for more sizeable reductions in the tax burden.

"Moreover, the government is well advised not to underestimate the importance of the deficit target, as it is one of the single most important guideposts for the market. In the current uneasy global environment, market players do not simply frown on fiscal loosening but actually bite. Therefore, it is a logical sequence to first help sustain a balanced fiscal consolidation path and only carry out major tax easing afterwards."

Barta believes this summer's tax cut will most likely be much smaller in size and "will only be carried out to show to the electorate that the government will not go back on its promise to cut taxes."

How not to communicate

Nigel Rendell, senior emerging markets strategist at the Royal Bank of Canada, told Portfolio.hu yesterday that he even avoids telling people that he had a Greek salad for dinner for fear that it might affect his credit rating. His opinion about the communication skills of the Hungarian cabinet has not really improved since then to say the least.

"This morning the financial markets were hoping that Fidesz had learnt their lesson yesterday, when throw away comments suggested that problems in Hungary mirrored those in Greece. The markets were wrong in a big way," he told Portfolio.hu.

"Further remarks suggest that the new government are determined to talk the economy and the HUF into a bottomless pit by raising prospects of debt default and now suggesting that austerity measures are off the agenda. At best this is bizarre, at worst it is madness," Rendell added.

He said it is "hard to think of a bigger PR disaster for a new government."

"The past 24 hours have been a showcase on how not to communicate with financial markets and has scared most foreign investors rigid with fright. It is said that financial market credibility is earned over years and squandered in days."

Rendell said the new government, which has been in power for just a week, "has managed to lose credibility in just a few hours and, at this rate, may struggle to ever recoup it."www.portfolio.hu - http://www.portfolio.hu/cikkek.tdp?k=2&i=20237


Le parti salienti sono : debito pubblico/PIL 78% deficit pubblico/PIL atteso per il 2010: 5% non sono dati poi cosi' gravi
 

Imark

Forumer storico
Credo preparino uno sganciamento dal processo di convergenza con i parametri di Maastricht ... forse sganceranno l'HUF dall'Eur, altrimenti non si comprende il venire fuori con il richiamo allo scenario greco...
 

sethi

Forumer storico
Temo che il problema non riguardi i dati di bilancio comunicati ...........infatti si parla di dati di bilancio truccati ..... ho delle bei in huf ma lunedì chiudo la posizione al volo.......temo che l'europa se si ritrova delle cartucce in serbo non le utilizzi x l'Ungheria, li interviene il FMI e per chi ha letto sul post swap argentina ....sa bene cosa ne penso di questa istituzione ......alla roulette preferisco andare a gocare a montecarlo almeno lì non c'è l'fmi che mi garantisce la vincita e all'ultimo momenti ci ripensa ;)
 

Imark

Forumer storico
Un problema aggiuntivo dovrebbe essere costituito dalla consistenza di prestiti in CHF erogati ad individui ed imprese anche in Ungheria, promossi dalle banche al pubblico in considerazione la bassa cedola e rivelatisi un vero boomerang con il rafforzamento del franco...
 

sethi

Forumer storico
Un problema aggiuntivo dovrebbe essere costituito dalla consistenza di prestiti in CHF erogati ad individui ed imprese anche in Ungheria, promossi dalle banche al pubblico in considerazione la bassa cedola e rivelatisi un vero boomerang con il rafforzamento del franco...


questo è un grossissimo problema infatti è uno dei motivi principali della crisi delle abitazioni in Umgheria, infatti l'anno scorso quando il "huf" ha raggiunto i 330 su euro e non sò quanto su franco eravamo nel culmine della crisi in Ungheria................. ora si cominciano di nuovo vedere tensioni sul rapporto huf euro malgrado l'euro stia precipitando, per cui non sto ad immaginare come si stia rafforzando il franco svizzero.............


di tutta questa storia prima subprime e poi bufera sui tds bisogna trarre una conclusione diversificare ma somme minime ed essere consapevoli che se si vuole guadagnare ci sono grossi rischi da correre insomma piccole cifre e sonni tranquilli
 

dachi

Nuovo forumer
io ho venduto ieri le 14 in euro, avevo letto un articolo poco incoraggiante, comunque le prospettive a breve non sembrano rosee e sicuramente si vedra' almeno un po' di panic selling, quindi eventualmente si rientra a prezzi piu' bassi
saluti a tutti
 

mago gambamerlo

Xx Phuket xX
just on time ! oggi fatto -15% da 107 a 92 ....
ps. Mark , te lo ricordi "nuove emissioni" cerini & paduli volano bassi ";)"

io ho venduto ieri le 14 in euro, avevo letto un articolo poco incoraggiante, comunque le prospettive a breve non sembrano rosee e sicuramente si vedra' almeno un po' di panic selling, quindi eventualmente si rientra a prezzi piu' bassi
saluti a tutti
 

Gaudente

Forumer storico
Posizione finanziaria internazionale netta

La trovate alla riga 20 del file allegato.
E' negativa per 108 miliardi di euro.
In rapporto al PIL dovrebbe essere circa il 90% (non sono riuscito a trovare nessun dato sul PIL ungherese a parte i 155 miliardi di $ del 2008) , ovvero un rapporto persino peggiore della Grecia (80%).
Diversamente dalla Grecia pero' la bilancia commerciale ungherese e' in attivo e le partite correnti in pareggio (ovvero l'avanzo commerciale copre interessi e dividendi agli investitori esteri) , inoltre dei 204 miliardi di passivita' lorde verso l'estero ben 87 sono investimenti diretti, quindi non prelevabili.
Ragionando in termini di valori netti , essendo gli investimenti diretti ungheresi all'estero 36 miliardi , 87-36= 51 miliardi dei 108 sono investimenti diretti e pertanto non prelevabili. Ne restano 57 di natura prettamente finanziaria (titoli e debiti) il cui onere e' a mio avviso sostenibile.
 

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