Hungary: nasty leader, nice stocks

Hungary’s authoritarian leader Victor Orban is widely reviled. But the country’s economy and equities look inviting, says Simon Constable in Barron’s. The economy is among the region’s fastest growers, with GDP expanding by 4.8% year-on-year in the second quarter. The Institute for International Finance (IIF) is pencilling in growth of 4.5% for 2018 as a whole and 3.3% next year.

Banks have cut bad debt, giving them more scope to lend, which should bolster corporate investment and overall growth. Monetary policy remains loose – the central bank’s interest rate is the region’s lowest, as the IIF points out, and “substantially negative” in inflation-adjusted terms. Hungary is also cheap.
The MSCI Hungary index trades on a price-to-earnings ratio of nine. Local blue chips are on appealing yields, with energy company MOL and the country’s largest bank OTP Bank yielding 4.2% and 2% respectively. No wonder wealth management group HCWE thinks Hungary is the pick of eastern Europe, says Constable.
The region is slowing slightly, as Liam Carson of Capital Economics points out, while inflation at a five-year high implies that dearer money could hamper stocks in the short term.
But there seems enough to like here to make the German-listed exchange-traded fund tracking the local BUX index worthy of further research (Frankfurt: HUBE).

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