Key insights
- HSBC upgraded Hungary to overweight following the Tisza party's supermajority win, anticipating the release of frozen EU funds and improved economic growth. Tax changes are expected to support growth. The Hungarian market is seen as undervalued, with potential for gains as political risks subside. While specific US equity impact is limited, it signals broader risk appetite in emerging markets.
Investing.com - HSBC upgraded Hungary to overweight from neutral following the opposition Tisza party’s supermajority win in the country’s parliamentary election, the bank said in a research note.
The National Election Commission reported that with 98.93% of votes counted, Tisza led by Peter Magyar secured 52.4% of the party list vote compared to 39.2% for the ruling Fidesz-KDNP, pointing to approximately 136 seats of 199 in the new parliament.
The supermajority gives Tisza the ability to amend the constitution and materially raises the probability of releasing nearly EUR18 billion in frozen EU funds, HSBC said. The frozen funds include approximately EUR8.4 billion in cohesion funds and EUR9.5 billion in COVID-19 recovery funds. HSBC expects closer alignment with the European Commission to unlock stronger EU inflows that should materially lift growth and ease fiscal pressure.
The new administration is expected to implement tax changes including easing the burden on lower-income households, VAT cuts on healthy food and medicines, simpler tax processes for corporates, and expanded eligibility for the flat-rate tax regime for micro-businesses and SMEs. These measures should support growth, HSBC said.
HSBC’s machine learning valuations framework indicates the Hungarian market trades at close to a 40% discount to fundamentals, one of the largest gaps across emerging markets. The discount reflects the drag from windfall taxes, an EU-related risk premium, and spillovers from the Russia-Ukraine war.
A Tisza-led government has scope to address the windfall tax and EU-related risk factors, HSBC said. The bank funded the Hungary upgrade by increasing its underweight exposure in ASEAN.
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