Emerging Markets: A Closer Look At Hungary
Budapest Hungary Emerging Markets

There is much jubilation in the economic circles of Hungary after Fitch upgraded the country’s long-term debt rating to BBB- from BB+ and also gave the country a stable outlook. Bloomberg reports that Hungarian Economy Minister Mihály Varga expects two other rating agencies to follow suit. And Prime Minister Viktor Orban has taken measures to reduce public debt and reverse the policies that he himself put in place during the 2008 recession—measures that contributed to the low rating in the first place. That was the good news.

The bad news was that GDP for the first quarter of 2016 came in at a mere 0.9%, way below consensus and sharply lower than the prior quarter at 3.2%. Is it an outlier? According to Mr. Varga, it is a “temporary blip,” as he anticipated the drop due to lower vehicle output and lower European Union payments.

We shall see. The only European economy to come in lower than Hungary was Greece, or as the economic news portal portfolio.hu prefers to call it, recession-ridden Greece. Ouch.

Varga is probably right, but only time will tell. Hungary has a very strong construction sector and is the largest electronics producer in Eastern Europe. They have become a major center for research and development in technology, with companies such as British Telecom (BT), Microsoft (MSFT), IBM (IBM), and Samsung (005930:KS) all having a large presence there.

There are also many Hungarian companies that have ADRs such as Magyar Telekom (MYTAY). The Budapest stock market benchmark index (BUX) has a nice year-to-date gain of 11.67%. Hungary is one of these countries that never seems to enter a financial discussion in the same way as Poland, or Russia, or for that matter ,“recession-ridden Greece,” but maybe it’s time for foreign retail investors to do some due diligence and consider investing in the well-known U.S. companies mentioned above or the many domestic corporations which have easy investment access.

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Peter Kohli is CEO of DMS Funds.

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