Equity 2 February 2012, 2:54pm

Hungary OTP becomes top pick of local fund managers

Portfolio

Stock markets had a great finish in January and the general index of the Budapest Stock Exchange (BSE) did not miss it either. On the contrary, with its 10% jump it was among the best performers. Hungary’s fund managers have subsequently turned more upbeat about the prospects of the Budapest bourse and their increased optimism is evident both in their short-term and longer-term outlooks. And this is also reflected in how the stocks are weighted against the fund managers’ own benchmark: we can now see a 15% net overweight position among them, which has been unprecedented since October 2008. The top pick of the portfolio managers has become OTP and MOL, with five mentions each.

The contributors to Portfolio.hu’s monthly poll were: Aberdeen, Allianz, Buda-Cash, CIB, Citadella Consulting, Concorde, Dialóg, Equilor, Erste, Generali, ING, MKB, Quaestor and Raiffeisen.

2012 kicked off in relatively high spirits on stock exchanges, but January is a traditionally strong month (January effect) so it was not such a big surprise.
http://www.investopedia.com/terms/j/januaryeffect .asp
The S&P 500 went up 4% in the first month of the year, beating its full-year performance in 2011, while the BUX index rose even more, 10%. The momentum was lent to the BSE by favourable global sentiment and a turnaround in the local economic policy that somewhat soothed troubled minds.

The local fund managers’ extremely pessimistic views have been replaced by rising optimism about the short-term prospects of the Budapest bourse, with only 7% of the respondents forecasting the BUX index to stand more than 5% below the 18,966-point reference value three months from now. In our previous poll, 57% of the fund managers were of this view. The ratio of those expecting a more extreme rise in the index has also grown, to 28% from 7% in January. The majority (64%), however, continue to believe that the BUX index will not be more than 5% away from the reference value.

The fund managers’ outlook improved for the longer term (12 months), as well. This is attested by the fact that none of the respondents believe the BUX index will show a larger than 5% drop compared to the reference value a year from now, while a month ago 21% of them projected that scenario. Meanwhile, the ratio of those expecting a 5% plus increase in the index on this horizon leaped to 50% from 14%. Another 50% of the fund managers expect to see the index +/-5% from the reference value in 12 months.

Once we combine all the prognoses in a single figure and put the monthly readings on a chart we can see that short-term optimism has not been this high for a long time, while it hit its lowest in quite a few months in January.

There is a marked improvement in the longer-term outlook too. The fund managers were last this upbeat in April 2010.

Of the blue chips, OTP and MOL turned out to be the top picks, with each of them garnering five mentions. Attraction to OTP and MOL has grown since our latest poll when the former got two and the latter three votes.

This is not surprising in view of the rising confidence in the BSE, considering that these papers generally rise by more than the market average when good times roll. We could witness than in January too when OTP gained nearly 40%, beating the market badly with a performance it has not shown since the spring of 2009. The rally in OTP’s share price was fuelled by favourable global sentiment and an improved perception of Hungarian assets by investors. The latter was caused by the government’s more conciliatory tone with the IMF and the EU which it hopes to grant the country a financial safety net. But OTP can still be regarded as cheap compared to its regional peers; on a P/BV basis it is still traded at a 50% plus discount.

We need to say a word about Magyar Telekom too, because it was named by a single fund manager as top pick, while it garnered three votes among the least-favoured stocks. There is little surprise in there, though because amidst rising optimism investors tend to focus primarily on cyclical stocks, which can benefit more from the general upturn.

As regards the small caps, the fund managers could name only a handful of them as top picks, just like in the past few months. Only Graphisoft Park managed to get more than one vote. CIG Pannónia, however, excelled among the least-favoured stocks with three mentions.

The fund managers’ rising good cheer is also reflected in the weighting of Hungarian stocks compared to the respondents’ benchmark: 38% of them are overweight on these assets, which is a great improvement over last month’s outcome when none of the fund managers were in this position. Now 23% of them are underweight and 38% are market weight.