KBC Market Research Desk
KBC Bank
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Polish and Hungarian assets under pressure...
…while the Czech government bonds strengthen
After Greek PM Tsipras unexpectedly called for referendum (5th July) on Friday, the Eurogroup convened and refused Greek FM Varoufakis request for a one month extensions of the talks on Saturday. Though the probability of Grexit increased, door for solution is not yet closed, mainly thanks to the ECB that kept the ELA active.
Towards this backdrop, risk‐off sentiment should dominate markets today and in the next few days. While investors might be cautious before trading on a Grexit and wait for further signals from the players involved, we expect that Polish and Hungarian assets could be under pressure in days ahead. This view has also been confirmed by today’s early trading as both the currencies (i.e. the zloty and the forint) and government bonds (10Y) have been under pressure. Hungarian assets may be the most vulnerable. Although the government “solved” the long-standing issue of FX mortgages earlier this year, the fact that Hungarian public debt is still the highest among CE countries (77% of GDP in 2014) along with the central bank’s policy could contribute to relative underperformance of the forint government bonds. On the other hand, Czech assets seem to weather the fallout from unfortunate turn of events in Greece quite well as expected as the koruna is only little changed and government bonds (10Y) are even seen a little bit stronger as they follow German Bunds.
To sum up, we expect the risk-off sentiment to be the most visible in case of Polish and Hungarian government bonds along with weaker forint and zloty. At the same time, we expect the losses to remain relatively contained.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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