Economy
Avoid long positions in “bad quality" Hungary after Moody's outlook cut - Danske
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Fitch on Wednesday changed its outlook for Icelandic debt from stable to negative and Moody's in the afternoon cut its outlook for Hungarian debt to negative from stable citing concerns over Hungary's swelling budget deficit.
Christensen highlighted the Hungarian market as an obvious candidate for a sell-off due not only to large imbalances, but also because of the significant lack of prudence in economic policy - especially lack of urgency in terms of tackling Hungary's enormous fiscal problems.
“Even though the change of outlook is not entirely surprising, it is nonetheless yet another reminder of the seriousness of the fiscal troubles in Hungary," Christensen said.
“Given the already nervous sentiment surrounding high-yielding markets after Fitch's changed outlook on Iceland, Moody's rating action will further worsen the investor sentiment ," he added.
In the meantime, he underlined that “the global markets still seem to be awash with cash, which is clearly supportive for the high-yielding markets, but it is also obvious that the markets will become increasingly selective."
Christensen said the changed debt outlook for Hungary from Moody's should effectively put the speculation about monetary easing from Hungary to rest. “With imbalances as large as in Hungary and a worsening of the global sentiment a key policy rate of 6% (as in Hungary) seems to provide a very small buffer against further shocks ."
He added that it should not be ruled out that the Hungarian central bank could “soon be forced by a sell-off in the forint to tighten monetary policy ."
Christensen highlighted the Hungarian market as an obvious candidate for a sell-off due not only to large imbalances, but also because of the significant lack of prudence in economic policy - especially lack of urgency in terms of tackling Hungary's enormous fiscal problems.
“Even though the change of outlook is not entirely surprising, it is nonetheless yet another reminder of the seriousness of the fiscal troubles in Hungary," Christensen said.
“Given the already nervous sentiment surrounding high-yielding markets after Fitch's changed outlook on Iceland, Moody's rating action will further worsen the investor sentiment ," he added.
In the meantime, he underlined that “the global markets still seem to be awash with cash, which is clearly supportive for the high-yielding markets, but it is also obvious that the markets will become increasingly selective."
Christensen said the changed debt outlook for Hungary from Moody's should effectively put the speculation about monetary easing from Hungary to rest. “With imbalances as large as in Hungary and a worsening of the global sentiment a key policy rate of 6% (as in Hungary) seems to provide a very small buffer against further shocks ."
He added that it should not be ruled out that the Hungarian central bank could “soon be forced by a sell-off in the forint to tighten monetary policy ."
