Last year has shown Hungary's vulnerability, MNB must be cautious - Amundi Fund Management
Recession in Europe no longer so certain
One of the important factors this year is that the chances of a European recession have started to dry up due to the fall in energy prices, with more and more people now expecting GDP growth by 2023, said Péter Kiss, Investment Director of Amundi, at a press briefing. The other significant change in recent months has been the sudden abolition of China's zero COVID policy, which could have a positive impact on economic growth and supply chains.
Everyone in Europe expected the industry to take a beating from higher energy prices, but this has not happened and
European industry appears to be more resilient than previously thought, the fund manager's experts pointed out.
Amundi believes that only the Czech Republic and Hungary could experience a mild recession in the Central and Eastern European region. However, better-than-expected forecasts for Europe and China could also adjust this upwards, so that even a year-on-year growth could be possible. Hungary also stands out in inflation, with a slower decline than other countries in the region and further upside risks from the lifting of price freezes.
MNB still needs to remain cautious
The above may mean that monetary policy can continue to be tight, and since the MNB's last meeting, the market is increasingly confident of this,
Péter Kiss stressed.
The MNB has to be very cautious, last year Hungary's vulnerability was quite pronounced, and this is reflected in the difference between regional and Hungarian interest rates - said Ernő Aradi, portfolio manager at Amundi. He believes it is worthwhile for the central bank to maintain the current interest rate level for a little longer than to rush a cut.
If the current positive trend holds, the MNB may indicate at the end of the first quarter how it plans to cut the overnight rate. They may hint at this in February, but a concrete move is more likely in March. After that, the base rate and the overnight deposit rate could converge sometime at the end of the second quarter," Aradi stressed.
According to the bond portfolio manager at Amundi, the euro-forint exchange rate has now become the strongest factor for the central bank. A sustained strength of the forint could be a sign of an imminent cut in the policy rate, and it would also be important to see a turnaround in inflation. These also point in the direction of a first move from the central bank in March. By the end of the year, the base rate and the overnight rate could fall to 11.5%, if there is still to be one.
The investment manager said that the current positive market and economic environment could be a tailwind for the forint, but there is a wide spread in forecasts, with analysts expecting almost anything between 370 and 420 today.
As regards the monetary policy of the developed central banks, Ernő Aradi stressed that the Fed is expected to follow the policy outlined so far and will not cut the policy rate this year. The evolution of monetary policy could make bonds attractive again, as US yields have already risen to a level that bodes well for positive real returns in the long term. The market has responded, with strong inflows into both developed and emerging market bond funds at the beginning of the year.
According to the Amundi expert, the weakening of the dollar that started last year is likely to continue in 2023, which could make emerging market bonds in their own currency attractive, as the exchange rate effect could be positive.
In the equity market, this year's winners could be the sectors that were the big losers in 2022, such as the US technology sector, says János Kocsi, portfolio manager at Amundi.
Cover photo: Getty Images
