Hungary, investors in sync for now over bourse’s revival
December 02 2015 08:24 PM

A sign is seen outside of the headquarters of the Budapest Stock Exchange. Investors in Hungary find themselves in a rare moment of harmony with the government, which has set out plans to revitalise its lacklustre stock exchange by encouraging companies to list, raise money and help boost the slowing economy.


Investors in Hungary find themselves in a rare moment of harmony with the government, which has set out plans to revitalise its lacklustre stock exchange by encouraging companies to list, raise money and help boost the slowing economy.
The National Bank of Hungary, run by a close ally of Prime Minster Viktor Orban, last week took control of the Budapest Stock Exchange, another move by Orban to increase state control over the country’s economy and financial markets.
Orban’s interventions since he took office in 2010 have included windfall taxes on banks, energy and telecoms companies, making life tough for investors.
This track-record makes some investors uneasy that Orban and central bank governor Gyorgy Matolcsy have taken control of the exchange. But there is also optimism that it will mean a greater alignment of the interests of the state and investors.
“As its owner the state will like the bourse more, therefore support it better,” Ferenc Virag, Chief Executive of Random Capital, which serves small investors, said.
Central bank deputy governor Marton Nagy, who will be chairman of the exchange, has outlined some elements of the plans including a new platform for small businesses and listing several state-owned companies on the exchange such as public utilities or state-owned banks.
“Beyond capital we need a regulatory package that creates the incentive system both for issuers and investors,” Nagy said. The Budapest exchange only has a handful of actively traded stocks, with OTP Bank accounting for more than half the volume, and only three other stocks considered liquid.
In the past 15 years, 35 stocks made their debut on the exchange. In contrast, Warsaw has had 127 initial public offerings in the past five years.
“There have been nearly no successful IPOs,” Random’s Virag said. “No stocks entered the Hungarian market that would have allowed small investors to really make money.”
Its problems stem partly from the government’s decision in 2010 to introduce one of Europe’s highest bank levies, which soured the business climate.
Also in 2010, Orban compared the stock market to a “roulette table” shortly before his government nationalised private pension fund assets worth about 3tn forints ($10.18bn), removing a big chunk of local liquidity.
But in February this year, Orban took a softer line on the banks promising to make their lives easier if they lent more to businesses and the economy. That helped the blue chip index gain 45% this year. Even so, Budapest has yet to pass its pre-crisis peaks and lags regional and global peers, which have done so.
Under Matolcsy, the central bank helped the government to bolster the economy by converting a huge stock of foreign currency loans into forints. It implemented a massive funding for lending programme and cut interest rates to a record low 1.35%.
But Hungary’s economy is slowing. It grew at an annual 2.3% in the third quarter, down from 2.7% in the second quarter, and growth is expected to slow from 2.9% in full-year 2015 to 2.4% in 2016 as a whole.
So the need to get capital flowing into the economy could also drive investor-friendly moves at the exchange.
“Everyone hopes that there should be many more tools in the hands of the state to bring about an upswing on the bourse than foreign owners used to have,” Robert Cselovszki, Chief Executive of the local investment arm of Austria’s Erste Bank, said.
Cselovszki expects legal changes, favourable tax incentives, and marketing and education campaigns to help the stock market.
Economy Minister Mihaly Varga has promised a more welcoming environment for companies to encourage new listings.
“We need a far more active stock exchange,” Varga told a business forum last month. “With changing ownership there is a chance for the domestic capital market to gain new momentum.”
But several investment professionals, who declined to be identified, said the central bank, which also controls the securities depository Keler and the clearing house Giro and acts as the market regulator, may already have too much power.
There are also doubts whether reforms to the exchange will help to provide the money businesses need to grow.
“It might be the case (that state ownership helps boost capital raising) but ... there are other tools to boost growth and while this might help, running the stock exchange should not be the main focus of the central bank,” Mikhail Liluashvili, economist at Credit Suisse in London said.

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