Fear of Donald Trump has been trading on European stock markets since November. His return to the US presidency with a belligerent tariff policy under his arm has generated uncertainty and has installed certain pessimism in the Old Continent. However, in the midst of general discouragement, a ‘stock market island’ has emerged that could greatly benefit from the return of the Republican candidate to the White House. This ‘island’ is none other than the Budapest Stock Exchange, the reference stock market of Viktor Orban’s Hungary.
Arguably, there is no leader in all of Europe who is more friend or is more ideologically aligned with Trump than the Hungarian president. This largely explains why, at a time when European financial markets are very dispirited, there is optimism in Budapest. In the Danube capital, investors are not as worried about the prospect of new Trump tariffs or disputes over NATO funding, as they are in Frankfurt or Warsaw. On the contrary, they consider the effects that the ‘Trump trade’ could have on Hungary’s faltering economy and its stock market to be potentially positive.
These speculations have increased after Orban arrived last week with his entourage in tow for an impromptu meeting with Trump at Mar-a-Lago, the re-elected president’s residence until he returns to Washington. Among those attending was Gellert Jaszaipresident of the Hungarian telecommunications company 4iG. When it became known that Jaszai had managed to chat with billionaire Elon Musk, currently a key member of Trump’s inner circle, to talk about possible business deals, the company’s shares skyrocketed.
4iG stock jumped 13% last week, the biggest gain in more than two years, offering proof that the Trump-Orban alliance is strong enough to lift even small businesses in the Hungarian market. According to analysts and fund managers, larger stocks can gain even more if Trump manages to quickly end the war between Russia and Ukraine, as he has promised.
The war has increased geopolitical risks and lowered the valuation of securities across Eastern Europe. And unlike the vast majority of their European counterparts, the largest companies in the Hungarian market – such as OTP Bankthe drug manufacturer Richter Gideon and the oil group Mol– have not cut ties with Moscow, which could help them benefit from any improvement in relations and a rebound in the Russian economy.
The Trump effect “could be a definitive boost for the Hungarian stock market,” he points out Bloomberg Peter Kiss, head of portfolio management at Amundi’s Hungary unit. The analyst believes that even if the tariffs imposed by Trump shake Europe and weaken the continent’s currencies, Hungary’s largest stocks will remain relatively insulated because they derive much of their income from neighboring countries in eastern and southern Europe: “These blue chips “They may even benefit from the weakening of the forint due to their high exposure to foreign markets.”
This scenario could prolong the rebound of the Budapest BUX stock indexwhich has beaten more than 85% of its global peers this year, amid a shift in domestic savings as local interest rates fall. However, even after a 30% rise in 2024, valuations remain attractive compared to their peers. The index trades at six times its constituents’ expected earnings, half that of the MSCI emerging markets benchmark.
There is a lot at stake in Ukraine
What happened these days with 4iG epitomizes the Orban’s business model. The ‘teleco’ is run by allies of the prime minister and has grown thanks to government-backed acquisitions, state contracts and subsidized debt. However, foreign investors own less than 1% of its shares, according to data compiled by Bloombergamid concerns about transparency. This compares to almost 20% non-resident ownership in OTP, 40% in Richter and 60% in Mol.
Not everyone in Budapest is optimistic about Trump 2.0, especially whether it will produce enough real investment to help Hungary’s ailing economy. A doubt to which adds an important obstacle: the relatively small size of the Budapest stock marketwhich has a market capitalization of about $41 billion, less than the stock markets of Romania, Colombia, Pakistan, Kazakhstan and Egypt. In fact, only five listed companies are worth at least $1 billion.
During Trump’s first term in the White House, which ended in January 2021, BUX gained 33% in dollar terms, while the MSCI benchmark index soared 57% in that period. Now there is hope in improving those numbers, but it will not be easy. Even with potential tailwinds from Trump, the Hungarian stock market still faces headwinds. consequences of years of policies imposed by Orbanincluding battles over European Union financing coupled with lax fiscal policy, all of which harmed the stability of the forint, according to East Capital portfolio manager Eglé Fredriksson. Furthermore, “it is difficult to expect a quick resolution of the Ukraine conflict,” he adds.
Rollo Roscow, emerging markets fund manager at Schroders in London, tells Bloomberg that Much depends on the type of peace that is achieved in Ukraine. If it includes security guarantees for kyiv strong enough to prevent a return to war, it would be positive in the short and long term. A weak agreement, on the other hand, can be “negative in the long term for regional risk,” he warns.
“Given that Richter and OTP are exposed to Ukraine and Russia, both would benefit from a lasting settlement in the war and give a new boost to valuations,” Roscow acknowledges. “Both stocks are cheap relative to their quality underlying fundamentals,” he adds. In a way, it ends, maybe close ties between Trump and Orban need not have much impact in the Hungarian economy to benefit the BUX. “Budapest is a small market with idiosyncratic impulses for the big stocks there that are not necessarily related to the Hungarian macro,” concludes the analyst.
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