An era is ending in Hungary: that of Viktor Orbán as prime minister, who has shaped the country’s political life over the past 16 years. Tisza, the party led by Péter Magyar, has won 138 of the 199 available seats, thus surpassing the two-thirds threshold needed to amend the Constitution. This result goes beyond what was predicted by pre-election polls and marks a radical change in Hungarian politics, both domestic and international.
The new government, strongly opposed to Orbán’s political line, has a pro-European and pro-NATO orientation. The election result was welcomed favorably in major European capitals and Brussels. Indeed, Orbán has long been a thorn in the side of European international politics, often taking positions strongly critical of the Union and sometimes perceived as closer to American or Russian orientations.
On the domestic front, the new government will face significant challenges, as over the past 16 years Orbán’s administration has occupied all the main centers of power, and there will likely be some resistance to implementing the new government’s agenda. Nevertheless, the change appears clear and the markets have reacted positively to the election outcome.
The Hungarian forint appreciated by about 3% against the euro, while the ten-year bond yield fell by around 40 basis points today, contrary to the main bond markets, where yields rose marginally.
We were positive on both the currency and local bonds in the months leading up to the elections, both due to the possibility of a leadership change and the high level of real rates, which left room for a possible cautious reduction in official rates by the central bank in the near future.
Moreover, the European Commission – which viewed the election result favorably – should cooperate with the new government to unlock the 35 billion euros frozen in recent years due to the positions taken by Orbán’s administration.
We believe that the positive momentum of Hungarian assets can continue and that this effect may extend to the assets of other Eastern European countries. Hungary has been the country with the lowest growth in the area in recent times. The new political shift should close the gap between Hungary and other countries, thanks to more favorable monetary conditions and the unlocking of European funds. The Eastern Europe area should outperform Central-Western Europe in terms of growth, and this should be reflected in the performance of local assets.
