Central European Weekly

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CE markets no longer immune for global market tension

Tue, Jan 22 2008, 11:48 GMT
by KBC Market Research Desk

KBC Bank


Czech Republic

Current account surprisingly in surplus in November

Hungary

Forint and bonds under pressure as global equity sell-off intensifies

Poland

No compelling case for a 50 bp hike in January, but rates are certain to rise

Slovakia

Country easily complies with the inflation criterion

The Week Ahead

MNB stays on hold, while it may release a hawkish statement

CE currencies finally hit from global equity sell-off

For a long time it looked that, with the exception of stocks, the other Central European markets would remain immune to the events transpiring in core markets. However, recent trading showed that contagion from the collapsing U.S. real estate sector has finally spilled over not only to equity markets in Central Europe. Currencies weakened across the entire region and Hungarian bonds are another victim, as usually happens in sell-offs on emerging markets.

Nevertheless, although Central European currencies have weakened, we can say that thus far, with the exception of the significant losses in stock markets, the increasing threat of the downswing in the United States and the significant tightening of credit conditions, have not dramatically affected the operation of Central European economies so far. Our opinion is that, even in the future, the impact of contagion from the US sub-prime sector on Central Europe should be primarily restricted to regional stock markets. In this respect, as stocks have only a relatively low share in the wealth of Central European households, we also do not believe that the fall of the markets will have a significant negative effect on real consumption.

However, the fact that the contagion from the U.S. mortgage crisis has seriously affected the operation of certain financial markets in developed countries should lead us to preventive prudence in Central Europe. Some negative second-round effects at the micro-level in the region may occur, although increased pressure has not been evident so far. For instance, Hungarian households that are taking and servicing debts in foreign currencies, or the expanding real estate developers in the Czech Republic, might be affected by the tightening of credit conditions within the next few months.


Published on  Tue, Jan 22 2008, 12:01 GMT

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Legal disclaimer and risk disclosure

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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