Bourse That Championed Capitalism in Eastern Europe Eyes Revival

  • State taxes, seizure of pension assets spurred trading slump
  • Hungary targeting 10 IPOs each year in stock market revamp

Tamas Hegedus, an equity trader at Hungary’s largest brokerage, says he’s hoping he won’t be disappointed a second time as the government pledges to revive a stock market hobbled by state interference.

Trading volumes on the bourse declined to $6 billion in 2014 from as high as $34 billion seven years earlier after Prime Minister Viktor Orban raised corporate taxes and seized pension-fund assets to prop up state finances. The government and the central bank are now asking investors to buy into a plan to sell state assets and restore some luster to a market that was among the first to reopen after the fall of Communism.

"My career had been cut in half just as I was starting to make ground," said Concorde Securities’s Hegedus, who started trading Hungarian stocks six years ago when he was 26. "I’ve felt disenchanted, having witnessed the boom in the previous decade from the sidelines. Seeing more companies enter would give me a new challenge."

Rebuilding the trust of investors will be an uphill battle after as much as $24 billion was erased from the nation’s equity market following the government’s move to take over 3 trillion forint ($10 billion) in pension savings in 2011. While the Budapest Stock Exchange rallied the most regionally this year as Orban pledged he’ll cut taxes on banks, some investors are withholding judgment until they see how much control the government will be willing to give up in its assets.

Persuading big companies to list in a market where daily trading volumes are a ninth of those in Poland and less than half a percent of the London Stock Exchange won’t be easy. Last year, there were 28 new listings in Warsaw and one in Budapest, according to data compiled by Bloomberg.

Choosing London

Hungarian low-cost carrier Wizz Air Holdings Plc, the biggest discount airline in eastern Europe, decided to skip the local market and trade in London instead in February. At almost 1 billion pounds, the company’s market capitalization would place fourth on the benchmark BUX Index, behind OTP Bank Nyrt., oil producer Mol Nyrt. and drug company Gedeon Richter Nyrt.

“The pure number of companies being listed isn’t important,” Henning Esskuchen, the head of equity research at Erste Group Bank AG in Vienna, said by phone Nov. 4. “You need to have a combination of companies with a reasonable size and good daily liquidity being traded on the market."

The National Bank of Hungary wants to turn things around. It’s in negotiations to buy the Budapest Stock Exchange from the Vienna-based CEE Stock Exchange Group, which bought it in 2004. The Budapest market went from being just under half the size of Poland’s a year before that buyout to 8 percent the size in 2014, data compiled by Bloomberg show.

New Listings

Aiming to attract 10 initial public offerings a year would be "sustainable" if Hungary sells stakes in state enterprises, Zsolt Katona, the exchange’s chief executive officer, said in an interview Oct. 28. "We have actively been pursuing a selected group of potential target companies for years. These efforts will bear fruit under the right market conditions."

A planned listing from Waberer’s International Nyrt., a road haulage company, this year shows some companies are considering Budapest after the BUX’s 34 percent rally in 2015 beat all but four of the 93 stock markets monitored by Bloomberg. Owners of Duna House Nyrt., the country’s largest realtor, plan to sell a third of the company in a joint public offering and private placement this month.

Average daily turnover in Hungary was 13 percent higher in 2015 than last year as OTP gained 48 percent, spurred by Orban’s vow to reduce the highest bank tax in Europe in 2016 and amid speculation the country will regain its investment-grade credit rating after lowering its budget shortfall and public debt.

Track Record

During a speech at a Budapest conference Oct. 27, central bank Vice President Marton Nagy said energy group MVM, Magyar Posta, lottery operator Szerencsejatek Zrt., and lenders MKB Bank and Budapest Bank were among the most promising candidates for listing in Budapest if the government follows through with stake sales.

"If the state retains a significant stake, that would make these stocks unattractive," Levente Blaho, an economist at Raiffeisen Bank International AG’s Hungarian unit, said by phone Oct. 30. "The success of any initiative will largely depend on foreign investors."

Hegedus, the Concorde trader, is trying to be optimistic that greater interest in Hungary’s market will boost his pay check and "professional self esteem."

"Based on the past, one is inclined to be less optimistic that the situation will change," he said on Wednesday. "But we have hope as there are signs that they are serious in their intention to bring real change. We’ll see."

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