Friday, November 25, 2011

Today's Major Market Move: Hungarian Equities Decline 4.5% in Today's Session

Hungarian equities have decline 4.5% so far in today's trading session and here's the reason why (other than the general global economic malaise): Moody's downgraded Hungary's credit rating to junk. Some details from Bloomberg:
Prime Minister Viktor Orban, who shunned seeking an IMF loan since coming to power last year until the forint fell to a record against the euro this month, may need to accelerate talks with the Washington-based lender to bolster investor confidence, fund managers at Aegon Fund Management, Aberdeen Asset Management (ADN), and K&H Fund Management said.

“They’ll either have to strike a quick deal with the IMF or the market will force them to,” Viktor Szabo, a London-based portfolio manager at Aberdeen, who helps manage about $7 billion in emerging-market debt, said in a telephone interview. “Hungary may stay one of the worst-performing markets if Europe’s crisis continues.”

We've discussed previously how the optimism from the October European bailout has fizzled out and several equity indexes are now back down to their 2011 lows. Hungary is on the verge of joining that list. Here's a chart of the primary Hungarian equity index, the Hungarian Traded Index:

Click here to go to the live chart.

The Hungarian Forint is also showing renewed signs of stress with the USDHUF breaking out to new highs.

Click here to go to the live chart.

According to, the benchmark 1 year Hungarian interest rate sits at 6%. The central bank is now in a box (which is what eventually happens to all central banks that try to financially engineer prosperity without true fundamental economic progress) where it has to decide if it is going to sacrifice the currency in order to promote growth (or at the very least stabilize the decline).

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