Fund managers see bumpy road ahead for Hungary's forint

The contributors to our survey were the following local fund management companies: Buda-Cash, Concorde, Dialóg, Diófa, Equilor, ING, K&H, OTP, Pioneer, Plotinus, Quaestor, Raiffeisen.

What lies ahead of the forint?

EUR/HUF was most volatile last month as the exchange rate jumped up and down in a range between 304 (in early April) to around 293 (mid-April) only to close at 299.50. The Hungarian currency was assisted primarily by global investor sentiment fuelled by the Bank of Japan’s substantial monetary easing.

The fund managers polled by Portfolio.hu has turned less upbeat about the forint’s outlook for the next three months. While a month ago only 9% of them projected the HUF to be 2-5% stronger three months later, now 23% of them expect to see the forint 2-5% stronger three months from now than the 299.50 reference value. The majority, however, continue to see a +/-2% shift in the exchange rate, a five percentage point increase compared to the previous survey.

A month ago 9% of the local fund mangers projected to see the forint at levels 5% weaker than the reference value 12 months later, whereas presently no one of this view. The ratio of those forecasting a +/-2% change in EUR/HUF remain high, but it dropped 18 ppts to 46%. Also, the ratio of those expecting the forint to be 2-5% stronger a year from now went up to 23% from 9%, just like the ratio of those projecting a HUF weakening in excess of 5%.

The sentiment among local fund managers is greatly reflected by the single indicator comprising all the estimates. This shows that the ratio of those expecting HUF depreciation both in 3 and 12 months has risen. The worsening of the outlook is more apparent for the longer term.

How will bonds perform?

The decline in yields on Hungarian government securities continued in April for the third month in a row. The MAX index closed last month at 555.9 point, up from our March reference value of nearly 540 pts.

A sweeping majority of the fund managers in our poll (92%) projected to see the index +/-2% from the above value three months from now, which is almost the same as a month ago (91%), whereas 8% of the respondents forecast a drop in yields by more than 2%.

The fund managers expect yields to be lower also 12 months from now - 54% of them believe the MAX index will be 0-5% higher on this horizon vs. 45% a month ago, while 46% of them expect to see the index up by 5-10%.

Although the fund managers are now more cautious in their 12-m outlook, this fails to be reflected in how they weigh Hungarian bonds relative to their own benchmark. A month ago 22% of them were overweight on this asset class vs. 27% presently, whereas the ratio of underweighters dropped 4 ppts to 18%.

As a result of the above the ratio of net overweighters went up to 9% from 0% a month ago.

• Tags:
• exchange rate,
• poll,
• survey,
• bond,
• yield,
• fund manager,
• forint