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Forint Declines From Two-Month High as Orban Secures Second Term

Hungarian Forint
“The market remains concerned that Viktor Orban will interpret his party’s victory as a mandate for him to steer the country even further away from the rule of law.” Photographer: Akos Stiller/Bloomberg

Hungary’s forint weakened from a two-month high and bonds fell on speculation Prime Minister Viktor Orban will centralize power further after his party won an overwhelming victory in elections.

The currency depreciated 0.5 percent to 307.25 per euro by 3:47 p.m. in Budapest after Orban’s Fidesz party won 67 percent of seats in parliament in yesterday’s elections. Yields on 10-year government bonds rose eight basis points, or 0.08 percentage point, to 5.66 percent. The benchmark BUX stock index fell as much as 1.2 percent before climbing 0.2 percent.

The mandate reflects an “obvious, unambiguous” endorsement for us to continue what we began, Orban, who clashed with the European Union and international companies during his first term, told reporters in Budapest today. The Jobbik party, which wants a referendum on EU membership, secured 12 percent of the seats, while the opposition alliance headed by the Socialist Party came in second with 19 percent.

The “initial market reaction will be negative for Hungarian assets following this confirmation of Fidesz’s remarkable victory and on strong gains made by Jobbik,” Phoenix Kalen, a London-based strategist at Societe Generale SA, said by e-mail late yesterday. “The market remains concerned that Viktor Orban will interpret his party’s victory as a mandate for him to steer the country even further away from the rule of law.”

State Dominance

The BUX index underperformed peers in developing countries during Orban’s first term as his government changed the constitution, levied extraordinary taxes on industries from banks to telecommunications providers, and rejected concern over the erosion of democracy as lobbying for foreign interests. The measure tumbled 29 percent in the past four years compared with a 3.5 percent retreat in the MSCI Emerging Markets Index.

“The main line of economic policy will remain, including the dominance of the state,” Balint Torok and Gergely Palffy, analysts at Buda-Cash Brokerhaz Zrt., wrote in an e-mailed report today. “The government may make some gestures toward parts of the business community it has spurned.”

Orban said the government would negotiate the existing banking industry tax with lenders, although it wouldn’t phase out the levy to support the state budget .The Economy Ministry declined to comment further in response to e-mailed questions regarding the government’s future policy.

Budget Deficit

Under Orban’s leadership, the budget deficit held below the EU ceiling of 3 percent of gross domestic product over the last three years, according to figures released by Economy Minister Mihaly Varga on March 31. The debt burden also fell to about 78 percent of GDP last year from 82 percent in 2010, data from the European Commission show.

Hungary’s bonds should be “stable” based on the country’s economic fundamentals, Zoltan Szucs, money manager at Aegon NV’s fund unit in Budapest, who helps oversee 2 billion euros ($2.7 billion) in assets, said by e-mail late yesterday. “What may threaten bonds is the vulnerability of the forint.”

The government should cut or abolish special industry and utility taxes to help boost investment, Napi Gazdasag reported today, citing an interview with Christopher Mattheisen, chief executive officer of Magyar Telekom Nyrt., the Hungarian unit of Deutsche Telekom AG.

Shares of Magyar Telekom declined 1.3 percent to 306 forint today. OTP Bank Nyrt., Hungary’s largest lender, rose 0.3 percent after gaining 2.3 percent last week.

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