Economy
Greek concerns create value in CEE currencies, especially Hungary's forint
“Building concerns surrounding Greece have caused a weakening of CEE local markets, which have moved in sympathy with peripheral spread widening. With this CEE sell-off being more closely related to sentiment channels and not fundamental channels of contagion, we think value is being created in CEE currencies, and in particular HUF," London-based economists and strategists at Morgan Stanley said in a research note on Tuesday.
From a macro standpoint, MS economists find that macro links between Greece and Poland and Hungary are “not of major concern", and with Greece having been in recession for several years the importance of Greek trade has been declining.
“Of course, repercussions of a Grexit could go beyond the macro impact on Greece, and onto the broader euro area which PLN and HUF would clearly be more sensitive to," they said.
However, even Morgan Stanley’s European economists and strategists believe that a Grexit is now “less likely to result in broad contagion, with stronger firewalls, less direct exposure and better EU fundamentals all providing a cushion."
With the longer-term eurozone outlook not negatively impacted, in their view, the outlooks for HUF and PLN should not be too severely affected.
They also noted that direct banking/financial links between Greece and Poland and Hungary are also not of major concern to the PLN and HUF outlooks, though this is of more significance to SEE economies.
“A large increase in external pressures related to Greece can cause a further unwind in long POLGB and HGB positioning as peripheral spreads widen and, given potential liquidity constraints, this positioning adjustment could be expressed via exchange rates and lead to a further move higher in EUR/PLN and EUR/HUF," they added.
However, given their assessment of direct channels of contagion being limited, they think such moves will create value, and an opportunity to enter short EUR/CEE positions.
MS strategist noted that although they do not have any such open recommendation, this is a dynamic they are watching, and they look for attractive levels to sell EUR/HUF.
From a macro standpoint, MS economists find that macro links between Greece and Poland and Hungary are “not of major concern", and with Greece having been in recession for several years the importance of Greek trade has been declining.
“Of course, repercussions of a Grexit could go beyond the macro impact on Greece, and onto the broader euro area which PLN and HUF would clearly be more sensitive to," they said.
However, even Morgan Stanley’s European economists and strategists believe that a Grexit is now “less likely to result in broad contagion, with stronger firewalls, less direct exposure and better EU fundamentals all providing a cushion."
With the longer-term eurozone outlook not negatively impacted, in their view, the outlooks for HUF and PLN should not be too severely affected.
They also noted that direct banking/financial links between Greece and Poland and Hungary are also not of major concern to the PLN and HUF outlooks, though this is of more significance to SEE economies.
“A large increase in external pressures related to Greece can cause a further unwind in long POLGB and HGB positioning as peripheral spreads widen and, given potential liquidity constraints, this positioning adjustment could be expressed via exchange rates and lead to a further move higher in EUR/PLN and EUR/HUF," they added.
However, given their assessment of direct channels of contagion being limited, they think such moves will create value, and an opportunity to enter short EUR/CEE positions.
MS strategist noted that although they do not have any such open recommendation, this is a dynamic they are watching, and they look for attractive levels to sell EUR/HUF.
