5 minutes reading time

Credit Markets

Although December was already marked by falling inflation in many countries, the pace of price increases continued to accelerate in Hungary. The fuel price cap introduced in November last year has moderated inflation in the interest of the public, but increasingly frequent supply problems have required the government to abolish the 480 forint price cap.

Joining to the other regional countries, december inflation data also caused a positive surprise in Hungary, as the y/y price increase was 24,5% compared to the 25,8% market expectations. Thus the average inflation arrived at 14,5% in 2022. In Hungary, scrapping the fuel price cap in early December would have raised inflation by nearly 2,4%, however only part of it appeared in the december data, so further increase is expected in January.

The central bank left its interest rate target unchanged at its December policy meeting, leaving the base rate unchanged at 13%. With the release of the December inflation report, the forecasts for next year have changed significantly. The central bank raised its inflation forecast for next year from 11.5-14% to 15-19.5%, but left its GDP forecast unchanged, still expecting growth of between 0.5-1.5%. During the month, the ÁKK presented its financing plan for 2023, according to which net financing needs next year will amount to HUF ~3 400 billion, with foreign currency borrowing accounting for a larger share than forint bond issuance which makes evolution of HUF price even more important. In gross issuance, of course HUF bonds are playing the biggest part. After the huge rally in November, yields have resumed their upward trend, with the 5-10 year segment seeing a rise of 80-85 basis points last month.

Within Asset Classes	Underweight	Slight Underweight	Neutral	Slight Overweight	Overweight
Bonds
Within Bonds
United States
Europe
Emerging Markets
HGB

Equity Markets

In December, US inflation fell further to 7.1% from the expected 7.3%. This was seen as a positive by investors, as the pressure on the US Federal Reserve to raise interest rates in this cycle has been reduced. Although in December the Fed raised its benchmark rate by another 50 basis points to 4.5%, the weaker inflation data means there is a chance that they will stop raising rates sooner than previously thought. As a result, the dollar weakened to a 6-month low against the euro.
In China there has been a radical turnaround in the handling of the Covid epidemic. The previous zero-tolerance has been reversed, Covid restrictions have been relaxed, PCR tests are no longer required to use public transport in many cities and in many places citizens who test positive can recover at home. The Chinese premier said that the policy of economic opening now underway would be maintained, with further steps to come. China’s top health official said the current outbreak of the omicron was no more serious than the flu and the relaxations were justified. Macro data in the coming months will show how badly the Chinese economy has been damaged by the Covid outbreak.
Inflation in Hungary remains extremely high. According to official data from the Hungarian Central Statistical Office, inflation was 22.50% in December, a multi-decade high and the highest in Europe.  During the month, the MNB did not change the base rate and the forint was stable against the euro. It seems that Hungarian interest rates are now high enough to prevent the forint from weakening further. On the last day of the year, one euro was worth 400 forints.

The table below shows the Manager’s views on the different asset classes and the weightings within each asset class. Markets have risen a lot since the October lows, which is not uncommon in a bear market. In the US, December’s unemployment data, just like November’s, came in a little higher than expected, which still gives the Fed room to raise interest rates further, which in turn gives a greater chance of a recession.

Within Asset Classes	Underweight	Slight Underweight	Neutral	Slight Overweight	Overweight
Equity
Within Equity
Developed Markets
Emerging Markets
Central and Eastern Europe
Brasil
India
China
Turkey
South-Korea
Taiwan
South-Afrika
Mexico
Indonesia

Our Funds and Outlook

In September, investors were already speculating about how long the US Federal Reserve would raise its benchmark interest rate, and when the moment would come when it would decide that it was high enough to contain inflation but not yet push the economy into recession. Since a lower interest rate environment is a prerequisite for a market turn, investors are trying to interpret any macro-economic data in the direction that would support the view that interest rates are already high enough that it is time for the Fed to stop. You can already see in the global economy that high US interest rates are causing serious problems. In September the British financial system almost collapsed when trading in British government bonds stopped, and the Bank of England had to step in to avoid total chaos. Another negative effect of high US interest rates is the strong dollar. This makes it difficult for emerging markets to repay their dollar-denominated debt. At the moment, it looks as if until the Fed communicates that it will not raise the base rate any further, neither the currency nor the equity markets can breathe a sigh of relief.

The following table shows the outlook for the Aegon Hungary Investment Fund Management Company Limited by Shares (Investment Fund Management) focused funds. The positions refer to the month of September, 2022, and depending on the current data and market developments these investments may change significantly.

Privátbankár.hu Klasszis awards:

in 2021

in 2020

in 2019

in 2018

Detailed information on the investment policy, distribution costs and potential investment risks of the funds can be found in the official prospectus and fund rules of the fund on our website. The information provided on this website is only for informational purposes and nothing on this website shall be considered a solicitation to buy, an offer to sell, or recommendation for securities, other financial products or services. Past performance is no guarantee of future performance. Aegon Magyarország Befektetési Alapkezelő Zrt. does not take responsibility for the investment decisions made on the basis of this announcement and its consequences.