Hungary Yields Hit Year High, Stocks Fall as Pension Grab Threatens Rating
Hungary’s borrowing costs jumped to the highest in more than a year while stocks and the forint fell as plans to funnel assets from private pension funds to the state drove investors away and raised rating-downgrade risks.
The forint slid as much as 1.4 percent, the most in seven weeks, and traded 0.9 percent weaker at 279.67 per euro as of 4:40 p.m. in Budapest. OTP Bank Nyrt. and oil refiner Mol Nyrt. led the BUX gauge of 12 stocks down 2.8 percent to 20,763.54, its lowest close in almost five months.
Hungary, which received an international bailout two years ago, plans to shift 3 trillion forint ($14 billion) of private pension-fund savings into the state budget to help reduce the deficit and public debt. Credit Agricole Cheuvreux SA said today investors should curb holdings of Hungarian equities. Fitch Ratings said today it may cut the country from BBB, the second- lowest investment grade because of the plan.
“Changes to the pension system have been received very badly and we do not expect there will be an improvement in the sentiment any time soon,” emerging-market strategists led by Shahin Vallee at BNP Parbias SA in London, wrote in a report today. “Euro-forint is approaching 280 and we expect some further upward pressure.”
Government bonds tumbled, driving the yield on government local-currency notes due in February 2015 up 34 basis points to 7.971 percent. The securities now yield 1.26 percentage points more than at the end of October, heading for the biggest one- month increase in funding costs since February 2009.
Prime Minister Viktor Orban’s administration gave citizens an ultimatum on Nov. 24 to move their pension savings from private funds or lose their public pensions.
‘Disillusion’
“It was shocking to read that this kind of thing can happen in this part of Europe,” said Daniel Bebesy, who oversees $1.5 billion at Budapest Investment Management, with as much as 30 percent held in pension savings. “There’s a lot of disillusion in the industry.”
Raiffeisen Centrobank AG analysts wrote in a report today that Moody’s Investors Service is “highly likely” to downgrade Hungary this month because of the government’s plan to “nationalize” the pension-fund assets.
Moody’s will make a decision this month on whether to cut Hungary’s rating from Baa1, the third-lowest investment grade, the ratings company said in October. Standard & Poor’s on Nov. 3 maintained Hungary’s rating at BBB-, one level above junk, with a negative outlook.
The cost of protecting Hungarian debt from non-payment with credit-default swaps rose 19 basis points to 344 today, according to data provider CMA. Default swaps rise as investor perceptions of the borrower’s creditworthiness worsen.
‘Complete Unpredictability’
Hungary is following the example of Argentina, which in 2001 confiscated pension savings before the country stopped servicing its debt. The government in Buenos Aires nationalized the $24 billion industry two years ago to compensate for falling tax revenue after a 2005 debt restructuring.
“Given the complete unpredictability of the government’s decision-making process, we have decided to recommend moving out of Hungarian assets, with the additional risk of ratings downgrades bearing negatively ahead in our view,” Simon Quijano-Evans, Vienna-based head of emerging-market strategy for Cheuvreux, wrote in an e-mailed report to clients.
To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net
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