Equity 3 March 2010, 9:22am

Only one Hungarian blue chip smells nice to fund managers

Portfolio

In the wake of a moderate dip on the Budapest Stock Exchange (BSE) in February, most of the fund managers participating in Portfolio.hu’s monthly poll continue to expect the BUX index to be +/-5% from the reference value three months from now. Relative to our previous survey, more of them are pessimistic in respect to where the BUX will stand 12 months from now, but the respondents are greatly split about the outlook on the Budapest bourse.

A sweeping majority of the fund managers put Magyar Telekom on the list of their local top picks, while the other blue chips garnered only two mentions each. The last time these were this “unpopular" was in the spring of 2007. The least preferred stock remained MOL.

The contributors to our poll were the following: Aberdeen, Aegon, Allianz, Buda-Cash, Budapest Fund Management, CIB, Citadella Consulting, Concorde, Erste, Equilor, Generali, ING, K&H, MKB, OTP, QUAESTOR, Pioneer, Raiffeisen, RCM.

Global stock exchanges seem unwilling to breach the range they have been hovering in since last October. Even the fourth-quarter corporate earnings reports, which generally painted a nicer picture of the companies than what the market expected, were unable to nudge them out of this corridor. On the Budapest Stock Exchange, drug makers surprised on the upside, while MOL’s Q4 figures were disappointing and Magyar Telekom did not excel either. Tracking its regional peers, the BUX index dropped 2.6% last month.

The majority of the 19 fund managers participating in Portfolio.hu’s monthly survey, i.e. 58% of them, continue to project the BUX index to be +/-5% away from the benchmark value of 21,268 points three months from now. As the index slipped lower only moderately in February, the respondents’ projections are not much different from what we saw a month ago.

Meanwhile, the longer-term (12-month) outlook has worsened, with the majority (37%) of the fund managers projecting a 5-15% drop in the BUX index, against 21% a month ago. The index created from all estimates reflects this growth in pessimism, as well.

However, we would not say that a large majority of the respondents are forlorn about the BSE's future. As you can see in the table above, the market is rather split in this regard.

Over the past few months, the fund managers have started to turn towards more defensive stocks, which made Magyar Telekom an undisputed winner. The telco stock has received six mentions as a top pick. Last Friday, MTel’s Board proposed to pay HUF 74 dividend per share on the 2009 profit, and apparently the 10%+ dividend yield and the approaching payment date has boosted the stock’s appeal for many.

None of the other blue chips managed to garner more than two mentions as a top pick. Even Richter failed to do so, although it surpassed analysts’ expectations in Q4 2009. The drugs maker has not been this “disliked" for years.

Its junior sector peer, however, has become more attractive. Egis garnered more mentions as a top pick than last month, which may be partly attributed to the fact that it is still trading at a major discount to Richter.

TVK also caught the eye of more fund managers and FHB retained its two mentions after it published Q4 earnings data, indicating strong fundamentals. A long-gone player is also back. Rába, which is seen standing a good chance of becoming a BUX member, has been missed for about a year from the top picks list.

The least preferred stock remains MOL. It very much appears so that the oil and gas company’s guidance given this Monday failed to disperse concerns related to a weak outlook on the sector. OTP was mentioned as a least preferred stock by four fund managers, while MTel and Richter are among the most disliked papers at three respondents.

The ratio of those fund managers who would keep Hungarian stocks at a lower weight than their own benchmark has dropped slightly (39%). This led to an increase mostly in the group of ‘market weighters’ (39%), as the ratio of ‘overweighters’ remains virtually unchanged at 22%.