HSBC has upgraded its view on Hungary from neutral to overweight following the opposition Tisza party’s supermajority victory in the country's parliamentary election, according to a research note published by the bank. The National Election Commission reported that with 98.93% of votes tallied, the Tisza list under Peter Magyar attracted 52.4% of the party list vote compared with 39.2% for the incumbent Fidesz-KDNP, signalling roughly 136 seats out of 199 in the new parliament.
The supermajority grants the incoming Tisza-led government the constitutional authority to make amendments - a development HSBC says materially increases the likelihood that nearly EUR18 billion in EU funds, currently frozen, could be released. HSBC detailed the frozen amounts as about EUR8.4 billion in cohesion funds and around EUR9.5 billion tied to COVID-19 recovery resources.
In HSBC’s assessment, improved alignment with the European Commission that would permit unlocking these EU transfers should translate into stronger inflows from Brussels, with a notable positive effect on domestic growth and a reduction in fiscal pressures. The bank also outlined a package of tax measures expected from the new administration that are aimed at supporting households and businesses.
Those measures, as described by HSBC, include easing the tax burden on lower-income households, reducing VAT on healthy food and medicines, simplifying corporate tax processes, and expanding access to the flat-rate tax regime for micro-businesses and small and medium-sized enterprises. HSBC evaluated these policy adjustments as growth-supportive.
HSBC’s machine learning valuations framework shows the Hungarian market trading at roughly a 40% discount to fundamentals, one of the largest such gaps across emerging markets. The bank attributes the discount to the impact of windfall taxes, an EU-related risk premium and spillovers from the Russia-Ukraine war. HSBC noted that a government led by Tisza would have the scope to address windfall tax issues and EU-related risk factors.
To accommodate the upgrade, HSBC said it funded the overweight position on Hungary by increasing its underweight exposure in ASEAN markets.