“Limited flexibility towards IMF/EU” likely to prolong market pressure, says City
In a research note released to investors in London, economists at Barclays Capital said that although investors may take the view that an IMF/EU programme can eventually be secured, “an agreement might require Hungarian asset prices to fall significantly further first”.
“It is notable” that, despite the pressures on Hungarian markets following the S and P downgrade late last week, “there have been very few signs” of the government re-engaging with the EU or the IMF.
Hungary’s government faces “non-negligible” external and domestic financing pressures in 2012, equivalent to EUR 14.9 billion or 13.6 percent of GDP. The 2012 amortisation schedule is backloaded, “which gives the government breathing space”. The government also has deposits and assets that it can still tap if market sources of funding become “more troublesome”.
However, the flexibility afforded by both these factors may prove to be a “double-edged sword” as they may harden the government’s stance towards the IMF and the EU, Barclays Capital’s London-based economists said.
Low trading liquidity has likely aggravated the impact of last week’s negative ratings news on Hungarian asset prices, but “we don’t see room for a correction into the New Year …. We recommend staying short the forint as a prolonged period of detachment between the government and the IMF/EU weakens the ability of the former to manage the likely private capital outflows from the country”, Barclays Capital said.
