Hungarian Assets Rally After Opposition Party's Landslide Election Victory

By Renae Dyer

Hungarian stocks rose to record highs and the forint hit a four-year high against the euro Monday after the country's opposition Tisza party secured a landslide victory in parliamentary elections.

The end of Viktor Orban's 16 years in power paves the way for closer ties between the European Union and Hungary, with the potential of unfreezing 17 billion euros ($19.93 billion) in funds from the bloc.

The BUX index of the Budapest Stock Exchange rose to an all-time high of 137,260 points in early European trade, according to LSEG data. The euro fell to 363.98 forints, its lowest level since February 2022.

Based on more than 98% of counted votes, Peter Magyar's Tisza was on course for 53.6% of votes compared to 37.8% for Orban's Fidesz, one of the largest winning margins in Hungary's 37 years since the collapse of communism.

Magyar has vowed to rebuild Hungary's relations with the EU, which have been strained for years. The EU has frozen funding to Hungary due to concerns about what it described as democratic backsliding, corruption and violations of the rule of law under Orban.

"From the market's perspective, the constitutional majority allows for a smooth transfer of power for the opposition and a faster path to unlocking EU funds, which are the main focus of investors, giving Hungarian assets another reason to extend their rally," ING analyst Frantisek Taborsky said in a note.

The collapse of peace talks between the U.S. and Iran over the weekend could be preventing Hungarian assets from rising even further, however, he said.

ING expects the euro to fall further to 355 to 360 forints in coming days if the conflict eases.

Hungarian long-dated bonds should also benefit from the prospect of a better economic outlook due to the expected inflow of EU funds and the prospect of euro adoption, Taborsky said.

Hungarian stocks rose steadily over the past two weeks as polls showed that a defeat for Orban was increasingly likely, with the BUX climbing over 9% so far this month. OTP Bank--by far the index's largest stock--was up close to 17% over the same period.

Magyar's landslide win leaves room for assets to rise even further, Morgan Stanley analysts said in a note.

The election result was welcomed by European Commission President Ursula Von der Leyen.

"Hungary has chosen Europe," she said on X. "Europe has always chosen Hungary. Together, we are stronger. A country returns to its European path. The Union grows stronger."

However, Commerzbank analyst Tatha Ghose said some of Fidesz's popular policies such as immigration restrictions could be difficult to reverse even with Tisza's large majority.

"Tisza inherits a state apparatus deeply shaped by Fidesz over the past decade and a half, with key institutions, administrative structures, and policy frameworks still populated by Fidesz loyalists," he said.

"Magyar's attempt to unwind this system--through anti-corruption drives, institutional reshuffling, or fiscal reform--is likely to be legally complex, politically contentious, and time-consuming."

Negotiations between the EU and Hungary as well as fiscal reforms will be key for Hungary's economic outlook and assets going forward.

Capital Economics said Hungary's budget deficit could narrow toward 3.5-4.0% of gross domestic product over the coming years, from around 5.5% this year, under the new government.

"The durability of any positive market reaction will now depend on how quickly Tisza moves to rebuild relations with the EU, secure EU fund disbursements and signal a credible medium-term fiscal anchor," Capital Economics economist Liam Peach said in a note.

--Write to Renae Dyer at [e-mail]

(END) Dow Jones Newswires

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