Equity 19 May 2020, 1:00pm

Thanks COVID-19: Hungarian households lose HUF 700 billion

Portfolio

No, your eyes do not decieve you: Hungarian households incurred 680 billion forints worth of (unrealised) losses on assets held in quoted shares, investment funds, pension funds and life insurance policies in the first quarter of 2020. To put this figure into perspective, let us remind you that losses in the worst quarter of the previous crisis was HUF 592 bn. Additionally, without the weakening of the forint, households would have lost even more in the first three months. Households' saving capacity, however, has apparently not been devastated yet. In the following we'll show you how much of every 100 forint was invested in government securities and other forms of savings in Q1.

The National Bank of Hungary (MNB) has published its preliminary financial accounts data for the first quarter of 2020. Hungarina households' gross financial assets stood at HUF 61,395 billion at the end of March, which marks a 10% year-on-year growth. The impact of the coronavirus (COVID-19) pandemic, however, is already reflected in the fact that the q/q increase was merely 1.0%.

This did not stem from the worsening of households' saving capacity, though. The main culprit was exchange rate losses. Still, as inflation picked up at the start of the year, particularly in January, household assets at real value declined by 0.4% in the first three months of 2020 instead of growing.

As regards the key forms of savings, government securities, current account deposits and currency remain to top choices. Government securities dethroned current accounts last year, but how these three performed in Q1 2020, mainly over COVID-19, is best shown by the graph below.

The two charts below may be the most interesting of all, as they show how the types of savings changed in January-March, as a result of transactions and revaluations. Net transactions show the difference between fund investments and fund withdrawals, while the revaluations show the impact of positive or negative yields on the total of the given savings.

Households gross financial assets grew by HUF 704 billion in Q1 on a transaction basis and government securities remained the most popular type of saving. Out of every 100 forints HUF 44 were invested in government securities, HUF 23 remained in currency, HUF 21 on current accounts and HUF 13 went into all the other types of savings.

The HUF 704 billion growth stemming from transactions was coupled with HUF -106 bn worth of revaluations that is apparently not even on the same page with the HUF 680 bn unrealised losses incurred in Q1 as we mentioned in the lead. The difference was caused by the fact that the MNB recorded major revaluation gains on other equity (which is hard to define) and foreign currency deposits. This clearly has to do with the substantial weakening of the forint, without which households' unrealised losses would have been a lot greater in the first quarter.

The following chart shows how the stock of the different types of savings stood at the end of March. 200519savngs07

When compared to 2008, the rising popularity of government securities is undeniable, but the stock of household savings in current account deposits and currency also grew considerably. Money held in investment funds mostly just stagnated over the last few years.