Poor Comparisons

Last week, Hungary published its Gross Domestic Product numbers for the second quarter of the year. The numbers were weak at 1.2 percent versus the first reading of 1.4 percent. The lower data is due to a 3.4 percent fall in consumption (mainly related to the government austerity measures). The Gross Domestic Product (GDP) figures are significantly worse that the Hungarian neighbors. In fact, Poland has a GDP growth close to 6.7 percent, Czeck Republic around 6 percent while Slovakia has a staggering 9.4 percent.

The numbers for the Hungarian inflation came out on Tuesday September 11. The market expected that it would fall to 8.2 percent yr/yr, but it came a little higher to 8.3 percent versus July’s inflation of 8.4 percent yr/yr. Inflation is much higher than in the other countries in the region as Poland and Czeck Republic inflation is around 2.6, while Slovakia has as low as 1.5.
Hungary, with higher inflation and lower growth that its neighbors, will face difficult times ahead. Foreign investors have a difficult time investing in Hungary as its fragile macroeconomic situation makes it less attractive than its neighbors.

The data itself is clearly negative, but I do not expect serious selling pressure on just this data. On the other hand, if the global market mood turns negative, the weak GDP-data might indicate significant profit taking in the stock market (mainly OTP, Magyar Telekom).

MOL, the largest oil and gas Hungarian company, continues loosing ground and has significant selling pressure in its shares as it is very improbable that OMV can make a hostile bid for MOL.
MTEL, the Telekom subsidiary of Deutsche Telekom, had some buying pressure as ING increased on Monday their target price to HUF 1,147 from 1,132 and also reiterated their buy recommendation. The analysts expect Magyar Telekom to announce soon a headcount reduction and to give a strategic outlook and financial guidance for the next years.Risks for Magyar Telekom (MTEL) include fixed-line deterioration and the macro economy in Hungary. This week, the market has remained quite volatile and with a death of domestic news, the Budapest stock exchange has followed the course of other foreign bourses, specially the Dow Jones from the USA. I expect the next weeks to remain shaky and characterized by nervous trading as investors are confused about the real impact of subprime mortgages in the US and the effect of that in international capital markets.