Hungary risks a “mass exit” from its debt and currency markets because of the danger that foreign investors’ dominant bond position may start unraveling, Fidelity Investments said.
Hungary’s government may need to reconsider its decision to try to finance itself without International Monetary Fund aid as the Cabinet struggles to get the economy out of recession without accepting the IMF’s policy prescriptions, said R. Aran Gordon, who helps manage $1.2 billion in emerging-market debt at Fidelity Worldwide Investment in London.
“One fact that is somewhat concerning is that, of Hungary’s local debt, 46 percent is owned by foreign investors,” Gordon said in an interview in Budapest late yesterday. “Should things unravel further, and local debt becomes less attractive, therein lies a potential problem because of the potential for a mass exit.”
International investors held 4.85 trillion forint ($21.8 billion) in forint-denominated bonds and bills as of today, compared with a record 5.08 trillion forint at the end of last year, according to data from the Debt Management Agency on Bloomberg. The forint was little changed at 292.78 per euro by 3:17 p.m. in Budapest, having weakened 0.5 percent so far this year after an 8.1 percent rally in 2012.
Yields on Hungary’s 10-year forint-denominated bonds fell three basis points, or 0.03 percentage point, to 6.244 percent. The yield fell to a seven-year low of 5.99 percent on Jan. 3., compared with 10.8 percent a year earlier.
Fidelity is “underweight” on Hungary’s debt and “short to neutral” on the forint, Gordon said. Fidelity has also moved to underweight from overweight on Poland, he said.
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