The first reaction came, as often happens, from the markets. And it was immediate. The victory of Peter Magyar and the end of Viktor Orbán’s sixteen-year government triggered a strong rally on the Budapest Stock Exchange, contrary to the rest of Europe. The Bux index gained 2.58% in early trading, and the market rose by over 3%, reaching new all-time highs above 136,000 points.
The figure is even more significant when placed in the global context: while the main European stock markets were weighed down by geopolitical tensions and rising oil prices, Budapest was moving in the opposite direction. An apparent anomaly, because it is linked to very specific internal factors.
Bloomberg speaks of a “new beginning” for Hungarian assets, with the forint at a four-year high and a generalized rally in stocks and bonds. “Orbán accepted defeat and Magyar is saying the right things,” noted Soeren Moerch of Danske Bank, adding that “the forint will strengthen and spreads will narrow: these are good news for Hungarian assets.”
Not only that. The strengthening of the forint – which rose to 366.85 against the euro – and the compression of bond yields indicate that the market is already anticipating an improvement in the country’s financing conditions, currently among the most expensive in the European Union.
Along the same lines is Kurt Knowlson of Aviva Investors, who believes the election result “significantly reduces Hungary’s risk premium on a structural basis.” In other words, the market is reacting not only to the political event itself but to the possible change in economic trajectory.
SELECTIVE REACTIONS AND NEW CAPITAL ALLOCATION
However, the reaction was not uniform. While the overall market surged, some stocks recorded sharp declines. Particularly falling, as Bloomberg reports, were companies most exposed to the previous economic-political setup, such as Opus Global and 4iG, which dropped by as much as 27% and 20%, respectively.
“Opus and 4iG show what hasn’t worked in the Hungarian stock market in recent years,” observed Matthias Siller of Barings, highlighting how the new context could favor greater openness and transparency.
This signals a possible rebalancing in the relationship between politics and the economy. In recent years, some large companies had benefited from a particularly favorable environment, including through public contracts and regulation. Now the market is pricing in a change that could affect the distribution of opportunities and access to capital.
Apolline Menut, economist at Carmignac, emphasizes that Magyar’s victory could translate into “a reduction in risk premiums” but also “a more competitive domestic environment, with less oligopolistic rents and a more efficient allocation of capital.” A step that reinforces the idea of a transition not only political but also economic.
THE DECISIVE FACTOR: RELATIONS WITH BRUSSELS
The real driver of the market reaction is one: the European Union. The Commission has already started talks with the new executive, but the release of frozen funds – about 35 billion euros – will be subject to compliance with 27 conditions, as reported by the Financial Times. Among the main requests are judicial system reform, strengthening anti-corruption controls, and interventions on key public institutions and state-owned enterprises.
This framework also includes overcoming the vetoes that in recent years have slowed some European decisions, starting with the 90 billion euro loan intended for Ukraine. The new Hungarian government’s stance on this dossier is considered one of the most relevant signals to evaluate the speed of rapprochement with Brussels and, consequently, the chances of unlocking the frozen funds.
“If they make the reforms, we release the funds,” was the summary from a European official. An approach that signals openness but also strong conditionality.
It should not be forgotten that part of these resources must be activated within relatively tight deadlines. Budapest risks losing over 10 billion euros if it fails to meet deadlines related to post-pandemic European programs. This adds pressure on the new government’s actions.
The change in climate is also evident in market analyses. “We can expect a significant thaw in relations between Budapest and Brussels,” observes Michał Jóźwiak of Ebury, who believes this will lead to fund releases and a “significant stimulus to economic growth.”
DEFENSE, NATO, AND NEW POSITIONING
The rapprochement with the EU also has implications on the security and defense front, with indirect but significant economic effects. A substantial part of the frozen European funds concerns concessional loans also destined for defense: over 17 billion euros out of the total approximately 35 billion euros still blocked by Brussels.
In this context fits the message from NATO Secretary General Mark Rutte: “I look forward to working” with Magyar “to further strengthen Euro-Atlantic security.” A statement that, beyond the political level, reinforces the perception of greater integration of Hungary into Euro-Atlantic circuits, with possible repercussions also on investments in the defense sector.
According to Tom Bailey of HANetf, the leadership change “removes one of the biggest sources of friction within the European Union” and can help make the decision-making process on security and funding smoother.
Alongside the security front, the energy issue remains open, representing one of the most delicate aspects of the ongoing transition. Hungary remains heavily dependent on imports from Russia, and Magyar himself has indicated the need to loosen these ties without compromising the country’s energy security. In this context, the case of Mol, the national energy group that imports Russian oil and whose governance could be subject to review, also gains importance.
THE CHALLENGES OF PUBLIC FINANCE
While markets look ahead, fundamentals remain complex. The new government inherits an economy with a high deficit, significant debt costs, and a sovereign rating close to speculative grade, as highlighted by Bloomberg .
The yield on ten-year government bonds has hovered around 7% in the past twelve months, a level reflecting both inflationary pressures and the country’s risk premium. Reducing this cost will be a priority.
Magyar has indicated the need to quickly approve a new budget law that puts public finance on a sustainable path. Options under study include a wealth tax to rebalance the tax system and a revision of concessions granted in recent years, particularly in the automotive and battery sectors.
These measures could free up resources but also entail risks in terms of attractiveness for foreign investments, especially in sectors that have been a pillar of Hungarian industrial growth.
CUTS, REALLOCATIONS, AND THE PRODUCTION SYSTEM
At the same time, the new executive aims to reduce some expenditure items linked to the system built during Orbán’s years, intervening on institutional advertising destined for pro-government media, public contracts considered overpriced, and other forms of resource allocation deemed inefficient.
This is an intervention aimed at redesigning the distribution of public resources but could face both political and economic resistance. At stake is not only spending savings but also the redefinition of balances between the state and businesses.
On the banking front, the Hungarian Banking Association has expressed the hope to collaborate with the new government to ensure “sustainable development and stability.” A sign of openness reflecting the sector’s interest in a more predictable environment.
WELFARE, INVESTMENTS, AND GROWTH
The picture becomes even more complicated when considering the need to increase investments in key sectors. Healthcare, education, social services, and transport require interventions after years of underinvestment.
This implies additional pressure on public accounts just as efforts are made to reduce the deficit. The risk is having to choose between fiscal consolidation and spending revival, two objectives difficult to reconcile in the short term.
At the same time, Magyar aims to strengthen the competitiveness of the economic system, reducing distortions and promoting greater competition. According to Bloomberg, this could help lower the cost of capital for large groups like OTP Bank, thanks to lower political and regulatory risk.
EURO AND MEDIUM-TERM PROSPECTS
In the medium term, the issue of monetary integration also returns. The new government has indicated the intention to move closer to the euro, a step that could help reduce debt costs and strengthen financial stability.
But the path will necessarily be gradual and subject to compliance with European parameters, starting with deficit and debt.
A MARKET BET
The rally of the Budapest Stock Exchange, the strengthening of the forint, and the compression of spreads tell a story of confidence but also very high expectations.
As Apolline Menut again points out, the new phase can improve the scenario through three channels: “risk reduction, greater internal competitiveness, and unlocking European funds.”
The direction is set. But the speed and consistency with which it will be followed will determine whether market enthusiasm remains an initial bounce or becomes a structural trend.
