The side-wind of the tornado hits BÉT

Budapest Stock Exchange drops 5.68% on Monday following international trends. Will it criple Hungary's economy?


In line with the international trends, the BUX benchmark of the Budapest Stock Exchange (BÉT) saw an almost vertical drop on Monday (Oct 6), decreasing by 5.68% to 17,991. Among the biggest losers were blue chips OTP, and MOL, whose share values diminished by 11% and 5.7% respectively. Trading of OTP shares were several times suspended during the day due to share prices resulted by panicking sale-waves.
Other popular Hungarian shares also recorded significant losses: telco giant Magyar Telekom (MTelekom), for example, lost some 2.63% of its share price. The only Hungarian company that managed to stand out was Richter, whose price remained unchanged throughout the sinister day.
The DJ index, consisting of Europe's top 200 companies hit its twenty-year low during the day.
The stock exchange was not the only place where Hungarian investors had to face difficulties. During Monday afternoon, the conversion rate of the forint dropped to a five-month low against the euro, breaking north of the psychological level at 250. The Hungarian currency also weakened against the USD, hitting a 12-month negative record at 184.


Central Bank reaction


The above tendencies, of course, have little, if anything to do with the Hungarian economy. As Júlia Király, vice chairman of the National Bank of Hungary (MNB) put it in an article in Hungarian daily Népszabadság on Monday (Oct 6), where there's a tornado, even its side-winds can cause serious damages. According to Király, Europe is less contaminated, therefore better protected from the financial crisis than the USA, although its markets obviously can not entirely avoid the harmful effects of the US crisis. Király also emphasized that the Hungarian bank system was solid and resistant, and that the current crisis hasn't in any way surprised the central bank. She added that MNB had foreseen the current events a year ago, and while it managed to fend off the direct impacts of the crisis, the turmoil will still have its mark on the Hungarian economic environment, primarily via the disappearance of cheap funds financing our economic growth.
Although most of the analysts find the Hungarian banking system trustworthy and solid, certain developments and measures (especially those imposed by other European governments) may still send a warning to investors. According to finance minister János Veress, deposits of Hungarian savers are fully protected, although the cabinet will "continue to consider taking further measures to protect both the system and individual bank account holders." Veress told Independent News Agency (FH) that the National Deposit Insurance Fund has earmarked Ft60bn ($328m) to handle the situation. On the other hand, while European governments jostled to offer increased or unlimited guarantees for bank deposits, Veress made it clear that Hungary had no plans for similar intervention.
The Finance Ministry may be optimistic, but experts aren't. An opinion poll released by Portfolio.hu on Monday (Oct 6) showed that most professionals doubt that Hungary will easily overcome the issues caused by the worldwide crisis. Experts asked by Portfolio have serious doubts whether Hungary's GDP could grow by 2.0% this year, and they find it almost certain that next year will bring a further slowdown in growth.

Zsolt Balla

28.11.2008