Orban Win Lifts Hungarian Assets as Investors Embrace Stability

(Bloomberg) -- Investors are looking for Hungarian populist strongman Viktor Orban’s resounding election victory to bring more of what they’re used to: a stable currency, tight control over the budget and healthy fixed-income returns.

Bonds rebounded and the forint showed modest gains against the euro as the ruling Fidesz party was set to win a two-thirds majority, according to preliminary results. Money managers and strategists highlighted policy continuity as an important factor for market investors. A larger-than-expected victory may nevertheless cause some concern that an emboldened Orban will be more confrontational on the European scene.

• Forint gains 0.1% to 311.62 per euro, outperforming its east European Union peers
• Hungary’s 10-year bond yield drops 7bps to 2.47% after rising 13bps last week
• Budapest Stock Exchange Index jumps as much as 1.8% as shares tied to an Orban-ally oligarch surge

Here’s a roundup of views after the election results:

Adam Bakos (Aegon NV, Head of Fixed Income)

• The market reaction will be subdued, with the continuity of economic policy cause for relief, but the margin of victory is a potential source of concern as it opens the way to clashes between the government and the European Union
• Bonds have room to recover after a small sell-off and the forint may also gain somewhat after recent negative sentiment

• The forint’s relative stability may continue as policy makers have preferred a steady currency to boost competitiveness, over devaluation

Gabor Ambrus (NatWest Markets, strategist)

• The results may lead to some short-term gains in Hungarian assets as markets price out uncertainty. The government’s policy is quite market-friendly, so there will be some relief among investors that there won’t be significant changes in the longer run
• The strong results will embolden Orban’s confrontational politics, but markets are used to this. Orban will see this as a confirmation that his brand of politics works

Gyula Lencses (Raiffeisen Bank International AG’s fund unit, portfolio manager)

• There might be a small market recovery after some modest forint underperformance of late, but bond markets had, by and large, not priced in much risk running into the elections
• The market’s best-case scenario had been a simple majority, as it would have guaranteed the continuity of economic policy and fiscal discipline that had a proven track record for bond investors, while avoiding some of the rule-of-law and institutional issues that foreign investors had been wary of

• Orban’s victory opens the way to maintained cooperation between the government and the central bank, which has been crucial to the decline in bond yields and improvement in external vulnerability. With Governor Gyorgy Matolcsy’s mandate expiring next year, it’s more certain that the National Bank of Hungary will continue this type of policy

Peter Virovacz (ING Groep NV, economist)

• This outcome is rather neutral for the markets, as no change means lower uncertainty. Fidesz will continue its economic policy -- both fiscal and monetary -- and we don’t expect any huge surprises
• Only one question remains: how Orban will change his cabinet. We might see some new guys and some old friends, including Gyorgy Matolcsy

To contact the reporter on this story: Marton Eder in Budapest at meder4@bloomberg.net.

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Balazs Penz, Michael Winfrey

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