Peter Magyar

The Budapest Stock Exchange jumped over 3% to a record high of more than 136,000 points on Monday as markets priced in the end of 16 years of Viktor Orbán’s time in power and the potential return of Hungary to a more mainstream European path.

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Increased investor appetite pushed the country’s largest listed companies, including OTP Bank, MOL, Richter, and Magyar Telekom to gain between 2%-5% by 1 p.m. CET.

The move contrasts with broader European markets, which are trading lower, digesting the failure of US-Iran negotiations over the weekend with no indication of further talks.

At the election on Sunday, Péter Magyar’s Tisza party secured 138 seats in the 199-seat Hungarian parliament, securing a supermajority and fuelling expectations of a seismic shift in the country’s politics.

Magyar, a former Orbán ally turned fierce critic, has promised to restore democratic checks and balances and unlock €17 billion in EU funds frozen over democratic backsliding under Orbán’s government.

This could be accompanied by access to low-cost loans for defence and infrastructure, fuelling the fragile growth of the Hungarian economy.

Speaking to Euronews, Timothy Ash, a senior emerging markets strategist at RBC Global Asset Management, explained that “the market is reacting to a combination of uncertainty dissipating, as there was a real concern of election results being contested, and renewed optimism for policy changes that should align Europe”.

“Magyar will need better relations with the EU. There are lots of structural funds that will probably get released, and the market knows the economic policy team well,” he added.

Ash also said that the likely pick of András Kármán as the new finance minister, “a very credible person,” will further stabilise the country’s near-term growth.

Kármán is currently Tisza’s economic advisor and previously served as a member of the board of directors at the European Bank for Reconstruction and Development (EBRD).

Investors appear to view the result as removing a long-standing political risk premium that had weighed on Hungarian assets.

The two-thirds parliamentary majority secured by Tisza will allow swift legislative changes, including the potential removal of sector-specific windfall taxes that had squeezed banks, energy firms and retailers.

Morgan Stanley and other analysts have noted that such a shift could lift Hungary’s GDP growth potential by 1 to 1.5% in the coming years through higher investment and restored EU transfers.

Hungarian currency strengthens on reform optimism

The Hungarian currency joined the rally, climbing to its strongest level against the euro in more than four years.

The EUR/HUF rate fell to 366.64, its lowest since April 2022, while the forint also gained sharply against the US dollar.

Market observers attribute the currency’s strength to expectations of reduced political uncertainty and renewed foreign capital inflows once EU funds resume.

However, Ash explained to Euronews that “Hungary has a very high real rate compared to, say, Poland. I think the central bank has maintained very high real rates because of political risk”.

“They were very concerned about maybe the currency weakening around elections, but are very eager to have a stable currency.”

Last month, the National Bank of Hungary held its benchmark rate at 6.25%, whereas in Poland, for example, it is currently steady at 3.75%.

“Maybe we’ll see a normalisation of real rates in Hungary towards [those closer to] Poland, and that means rate cuts, probably. Investors will likely focus on rates more than the currency as Hungary will also need economic stimulus to catalyse growth,” Ash added.