The Hungarian Economy and Property Investment.

Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

True, they've become more expensive, but the HUF always springs back. It's a very erratic currency and bobs up and down with no apparent reason. Long term projections still suggest that it will strengthen well under 250 HUF - 1 EUR.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

budapest said:
True, they've become more expensive, but the HUF always springs back. It's a very erratic currency and bobs up and down with no apparent reason. Long term projections still suggest that it will strengthen well under 250 HUF - 1 EUR.
Click to expand...
Care to provide us with some current long-term projections?
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

On 13th October, István Zsoldos, analyst at Goldman Sachs in London stood by his prediction of an exchange rate of 1 EUR - 225 HUF within 12 months. On 10th October, Raiffeisen suggested 1 EUR - 245 HUF by the end of the year.

It's a difficult one to predict, but all major analysts are of the opinion that it will stay under 250 in the long term.
 
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Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

I would be more worried about the swiss franc. It has been a funding currency for the global carry trade which is now unravelling. Funding a Hungarian mortgage with swiss francs is a version of the carry trade execpt it's not as nimble as the hedge fund variety. Maybe we're near the end, I don't know, but as long as the global deleveraging continues expect the swiss franc to head higher.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

The EUR/HUF exchange rate has been quite predictable for the most part over the past eight years, staying close to 1 EUR - 250 HUF, which is where it is at the moment. It has had swings upwards and downwards, but in the end, has always found a stable ground. The CHF/HUF exchange rate has also kept more or less the same track, but has been a little more volatile:

EUR/HUF:
http://finance.yahoo.com/q/bc?s=EURHUF=X&t=5y&l=on&z=m&q=l&c=

CHF/HUF:
http://finance.yahoo.com/q/bc?s=CHFHUF=X&t=5y&l=on&z=m&q=l&c=

There has always been a concern with the extent that Hungarians have been borrowing in CHF and EUR, but locals prefer to take the risk of the HUF weakening somewhat (which hasn't happened in the last eight years) over high HUF mortgage interest rates. Local borrowing levels are very low in any case, so the risk is usually manageable.

The local economy is doing fine at the moment and things are definitely moving in the right direction. The current budget deficit is likely to be only 3.4% this year. The main worry at the moment is if other banks follow MKB's lead and withdraw new foreign currency mortgages, which would pose a bigger problem, unless HUF interest rates come down in the near future.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

HUF hits 5 year lows against Euro and Swiss Franc.

Surely a lot of downside left.

This is going to burn a lot of people who played the FX market.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

Yes, it's not looking good at the moment for the HUF, but things change on a day-to-day basis. It's impossible to predict anything at the moment. It's at a 2.5 year low against the EUR.

Its strength is being totally affected by external factors. The local economic situation is the best it has been in years with the current budget deficit likely to be less than 3% in 2009, yet the HUF has weakened dramatically (hopefully temporarily as before). One of the main reasons why the HUF has suffered more than neighbouring currencies would appear to be that the terrible economic policies from 2002-2006 has caused a hangover effect for Hungary in terms of external perception.

The whole region is suffering at the moment. The PLN has also fallen by 12.6% over the last two months. The CZK has fallen by over 10% in the same period.

The Royal Bank of Canada published an interesting scorecard last Thursday, which ranked EM financial risk in the world's main emerging economies as a way of highlighting potential banking or FX convertibility problems. Latvia, Bulgaria, Romania, Ukraine, Estonia, Lithuania and Poland were all judged to be higher risk than Hungary.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)



Budapest, I really think the fundamentals for Poland are so much better than Hungary. The recent fall in the Zloty is in part due to the state of the Forint dragging it down. This is what most of the recent news commentary suggests.

http://www.fxtraders.eu/article.php?id=17186

Of course the general pulling out by investers of all emerging markets is affecting all the CEE currencies in the main. Nonetheless, long term the view of Poland is far better. The figures for GDP growth and current account deficits based on country size speaks for itself in favour of Poland over Hungary.

http://www.economist.com/markets/indicators/displaystory.cfm?story_id=12429596
http://www.economist.com/markets/indicators/displaystory.cfm?story_id=12432263

I hope Hungary recovers soon but I still think there is a good 2-3 years left to do so. Poland's size alone stands it out in CEE.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

I'm not sure I agree with you, ringledman. Certainly statistically-speaking, Poland is doing much better, but local sentiment isn't good over there either at the moment. Unemployment is higher than Hungary and there is a feeling among certain groups of people that they have missed out on the upsurge of the past few years. I've spent a lot of time in Warsaw over the past few years and it still feels less affluent than Bp. I'm pretty sure that the vast majority of Hungarians are in a better economic position in their everyday lives, even though statistics don't always reflect this.

I agree that at least two years will be required before Hungary can get back to normal economic growth levels. At that stage, we should have a clearer picture of what direction the country is heading in.

With 38M people, Poland may have an advantage in certain areas, but it's interesting too that the two countries, which are currently furthest along in terms of Euro adoption and economic westernisation are among the smallest - Slovenia with 2M inhabitants and Slovakia with 5.4M.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

Hi guys,
Despite the variance into discussion on football nazi fans, some of you guys seem to know what you are talking about.

I am currently in the process of buying a flat in Budapest and with the current situation am a bit lost.

I was looking for a 70% mortgage on a classic flat.
Broker advised CHF which seemed the best bet considering the interest rate. I have the other 30% in Hungary at various exchange rates over the last few months/weeks ranging from 233 (ouch) to 266.

Anyway today the bank confirmed that there are no more CHF loans from them and with a contract deadline looming i guess ill have to take their best Euro offer. So can someone explain to me if there are any problems with that.

Ill be making payments in HUF, but on a Euro based mortgage. What does the fact that its 1€-270HUF at the moment mean.

Can anyone make me any wiser...feel free to ask questions. Money matters not my strong point but finding the right property was and despite a lot of gloomy news on other posts about Budapest i think this is a fantastic oppurtunity to buy well in a market thats down. Comments?
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

Hungary is probably one of the only countries in the EU where Property prices wont fall, so the question everyone is asking is when they will rise at a rate greater than inflation.

My answer to this is that as inflation falls, and with the return of consumer confidence (see recent GKI sentiment index) and the retail sector recovers somewhat, thus business confidence will return. In combination with this the HUF will strengthen against the Euro and could reach the 225 HUF to Euro by the middle of next year. Partly due to fall in the Euro rather than the strengthening of the HUF.

I am a little more optimistic about things in Hungary than our Budapest poster friend, admittedly this liquidity issue could delay the recovery - it all depends on how it impacts the consumer confidence.

I think the GBP will FALL against the Euro - to hit lows toward the middle of next year. I can explain why if you want.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

I agree that Hungary will weather this storm, but it may have a long way to go.
http://www.portfolio.hu/en/cikkek.tdp?k=2&i=16102

As of now, there is absolutely no fundamental reason why the HUF should be so weak. HU banks make incredibly high profits and have always had stringent lending principles. Furthermore, apart from OTP, all of the major institutions are owned by wealthy foreign banks. However, at the same time, I'm a little dubious about Goldman Sach's optimistic claim of 225 HUF - 1 EUR within a year.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)


No fundamental reason....? You have to be kidding. Here are some (Hungarian) fundamental reasons...

Average bank loan/deposit ratio = 170%

Hard currency loans as a % of total loans = 55%

Current account deficit = 6%

External debt as % of GDP = 102% (anything over 35% for an emerging market is considered risky)

FX reserves as a % of ST external debt = a measly 1.5%

And if that does not concern you consider this - 56% of all mortgage loans in Hungary are originated by agents and not by the local bank branch. The last time lending on this scale was carried out by agents was during the subprime lending boom in the US.

All of the above metrics spell trouble and are considerably worse than ANY of the equivalent metrics for the Asian economies just before they crashed in 1997/1998.

Today the CB of Hungary increased rates by 3% and the currency barely budged.

I would wait before committing any money to Hungary or indeed any Central European emerging market. The credit crunch is begining to make its presence felt here and I suspect that the consequences will be pretty grim.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

The current account budget deficit for 2008 is 3.4% and potentially lower. For 2009, it will be 2.9%. Gross debt is around 60% of GDP, which is very high, but should be manageable and will certainly be assisted by predicted GDP gains from 2010 onwards. The main concerns are high FX borrowing, which journalists exaggerate the importance of and low reserves, which could be a potential problem, if the ECB or IMF refuse to assist if they were ever required to do so. This is highly unlikely. Furthermore, local banks are in absolutely no trouble whatsoever and make record profits every year. Locals can afford the small FX mortgages they already have.

Aside from the externally-influenced currency issue, the Hungarian economy hasn't been more stable in recent history than it is at the moment. The 3% central bank interest rate increase should have an effect over the coming weeks. It is mainly a tool to prevent further speculation from outside interests. Nobody predicted an immediate response, although it has caused the HUF to increase in value from 282 HUF - 1 EUR this morning to 273.5 HUF at the moment. Of course, the HUF continues to be in a very vulnerable state.

Hungary is on a difficult journey and has very clear problems, which it is dealing with effectively, but there is no fundamental reason for the HUF to be so weak at the moment. It is a notorious country as it has had a very media-friendly economic shift/political scandal in 2006, which certain journalists still cling on to, as the current facts of the situation are not as sensationalist as they would perhaps like them to be. I've read very little in the past few weeks about other much more vulnerable countries in the region such as Latvia, with much greater problems of 16% inflation and an out-of-control current budget deficit. In fact, Bulgaria, Romania, Estonia, Lithuania and even Poland all have more worrying statistics than Hungary, yet don't have HU's reputation.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)


The facts of the situation are dire and as I mentioned in my last post, countries with better fiscal/financial profiles have suffered investor fright and subsequent collapses.

The golbal financial system is de-risking and deleveraging. Hungary, and too many of its peers, stands out as being over leveraged and highly risky.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

Might I add that your figure for external debt is innacurate. Back in 2006 the figure was almost 80%..

http://www.imf.org/external/cee/2006/082806.pdf

..and it has not improved since then.

In addition, will domestic interest rates of 11.5% in Hungary (as of this morning) impact any of your economic forecasts?

Credit growth in Hungary will most likely come to a rapid halt because your banks cannot fund themselves. Your CB doesn not have the reserves to cushion the funding pressure as FX loans are rolled over and cannot be re-funded. High domestic interest rates will not be supportive of asset prices (particularly property).
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

Asset prices have been more or less stagnant for years, mainly because of the lack of credit available. I don't foresee credit growth either for Hungary in the near future. Few people have been borrowing in recent years and this is unlikely to change. The banks are safe though and no local or overseas expert would specifically suggest otherwise.

The fundamental point of my post was that almost every country in the region has worse economic statistics than Hungary, yet because it is an easy (media-friendly) target and has an unfavourable economic reputation caused by years of terrible policies leading up to 2006, it has being singled out in the international press. The obvious example of a country in riskier financial shape is Latvia, which has an external debt in the region of 140% of GDP with a spiralling budget deficit, 16% inflation, an over-stretched and indebted population and collapsing property values.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

yeah right thats why they had to borrow 5 billion from ECB.
 
Re: Forint now seen as better bet to Zloty (according to Goldman Sachs)

The Icelandic crisis was the factor that led to a sudden reapparaisal of emerging market risk. Just look at what happened after the Russian debt default - ALL emerging markets suffered dreadfully in the fallout. Just because Hungary is not as bad as some other countries does not mean that investing there is a wise move.

I also doubt your comments on the health of the Hungarian banks. Just look at their share prices and bear in mind that the markets were not wrong to sell Bear Stearns, Northern Rock, Bradford & Bingley, Lehman, Wachovia, ING, AIG, HBOS, Swedbank etc...
 
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