The Roubini Empire Strikes Back

According to Jelena Vukotic Hungary stands out as the most vulnerable one mostly because of its high level of external debt, relatively high level of public debt. The euro zone bank deleveraging also has a negative affect.

Peter Zentai: First of all, why did you choose the analyze the Hungarian forint?
Jelena Vukotic: We are a macro strategy consultancy. We cover a number of countries in the world. We also cover Hungary. Our recommendations and macro views which we published in Hungary are only part of my work piece. We put out comments and views not only on Hungary but also many different countries. It was only a part of the outlook report. It wasn’t an individual report that was published.

Did you have negative comments on other countries as well?
I wouldn’t phrase it as negative comments. Our job is to give our views of the whole region. Hungary is vulnerable to tail risks in the euro zone as much as any other country in the region such as Checz Republic or Poland. However we did look into the domestic dynamics in Hungary and we could say that some of the political risk can also weigh on the forint. By that i mean upcoming shift sin the central banks, the new governor that will take place and also the new governor deputies. Money policy easing could put pressure on the forint. We are also very watchful of any developmeJK2_BWnts with regards to the IMF loan agreements. We think that government is keener to preserve the fiscal policy its fiscal policy.

Talk to me about your favorite and less favorite countries regarding the macro outlook.
Hungary does stand out in terms of underlying macro vulnerability in the region. The whole region is exposed to cyclical development. Hungary stands out as the most vulnerable one mostly because of its high level of external debt, relatively high level of public debt. The euro zone bank deleveraging also has a negative affect. I would say that there is also another country that is vulnerable in the region, that is Romania which shares some of these macro vulnerabilities especially week banking sector that is exposed to the euro zone and also high external financing needs.

Do you think that Hungary can do well without an IMF deal?
I would say it really depends on the external environment. Right now the government is hoping to tap the international bond market. Given the ongoing rise of the global risk appetite, the monetary easing in developing countries the government is hoping they will be able to issue foreign currency bonds either in euros or dollars in the coming months. If the external environment turns negative then Hungarian markets would get destabilized. My point is right now that debt auctions are being oversubscribed which is the result of global liquidity. Investors hunt for higher yields. Any sort of hype in global risk aversion would affect Hungarian markets.

Do you expect deterioration in the external environment? Do you see signs?
We could see continued positive global sentiment in the first half followed by second half which could be worse given the risks surrounding the US debt ceiling, Chine slowing.

You said you were advising shorting the Hungarian forint.
Yeah, giving the risks we see going forward. Political risk, possibility of more aggressive rate cuts as well as political risks coming from the upcoming elections.