Re-emerging

Gábor Orbán
macroeconomic analyst and bond portfolio manager

The first capital-market topic of this year was the calming of the mood of panic that had arisen in relation to the debt struggles of the eurozone’s periphery. Due to the holding of some extreme positions, this resulted in a decline in Spanish, Greek, Irish and Portuguese CDS premiums throughout January. The Hungarian market has followed the fluctuations of the periphery almost by proxy in the past as well, so that Hungarian assets clearly outperformed this January, prompting a minor correction in February.

Investors’ attention has now turned from the debt crisis problems of European states to another process, namely the struggle of an ever-expanding number of developing economies against the influx of capital, moreover through only partly market-compliant means. Following Southeast Asia, Brazil and then Turkey began to draw investors’ appetite away from building positions. There are a variety of reasons for such restrictions on capital: arresting foreign currency appreciation, putting a brake on the outflow of domestic credit, and preventing the formation of bubbles on various niche markets or the general overheating of the economy. Open market intervention, the raising of reserve requirements and all manner of taxes are among the frequent methods. In the “most successful” Turkey, the action taken was to introduce a changing system of requirements for reserves placed at the central bank, which favours the influx of longer-term over shorter-term capital. In addition the key policy rate was cut back in order to make Turkish investments less attractive for foreigners, all with the undisguised intention of introducing shortterm volatility in asset prices, which in turn holds back the influx of capital. The result: a sharply weakening Turkish lira and suffering stock-market index…

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