Friday, December 30, 2011

Today's Major Market Move: Hungarian Stock Market Declines 2.3% in Friday's Session

Hungary has popped up as the topic of our Major Market Move post three times over the past 2 months (for the Forint see December 22 and November 12, for the Hungarian equity market see November 30) and today it has managed to accomplish the feat again. On a day when only 25% (80 out of 320) of the equity indexes we track finished in the red and most of Europe was in the black, the benchmark Hungarian Traded Index was the worst performer, falling 2.3%.

Click here to go to the live table.
In the December 22 post we discussed how Hungary was playing hard to get with the IMF and EU by not acquiescing to all of their demands. By being obstinate, Hungary is risking further outside financial assistance which by most accounts the government desperately needs in order to meet its financial obligations. One of the points of contention was a Hungarian law that was approaching passage that would limit the central bank's independence. Today we got this news (from The Gulf Daily News):

BUDAPEST: Hungary's parliament defied international concern and yesterday adopted a reform of the central bank that critics say increases the government's influence over monetary policy.

Legislators approved by a vote of 293-4 the law which led the European Union and International Monetary Fund (IMF) to walk out of talks earlier this month on a possible bailout for Hungary worth 15-20 billion euros ($20-25bn).

Prime Minister Viktor Orban, however, rejected a call by the head of the EU executive, Jose Manuel Barroso, to withhold adopting the legislation until it is brought into line with EU law, and the parliament went ahead and passed the bill into law.

The act expands the central bank's rate-setting monetary council to nine people from seven, with the two additional nominees to be appointed by the parliament which is dominated by Orban's centre-right Fidesz party.
Not just Hungary's equity market was punished by this event, but also the Forint, where the USDHUF is trading at the 2011 highs. Here's the annual chart of the Hungarian Traded Index against the USDHUF:

Click here to go to the live chart.
As we've mentioned before, we anticipate that the potential spark for a next down leg in Europe would not come from a country within the Eurozone or even the EU, but from one of the countries lying on the fringes such as Hungary, Poland, Turkey, Serbia, etc.

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