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Hungary was one of the only bright spots in global markets on Monday, after its general election handed a landslide victory to opposition leader Péter Magyar. In the long run, the result may be felt far beyond Budapest.
Magyar’s Tisza party was projected to win a two-thirds supermajority in the Hungarian parliament, bringing 16 years of rule by Viktor Orbán’s far-right Fidesz party to an end. Pledges to stamp down on corruption and repair relations with the EU have been welcomed by investors. The forint strengthened 3 per cent against the euro on Monday and the benchmark Bux stock index rose almost 4 per cent.
Slow growth and high inflation under Orbán have weighed on the value of Hungarian assets. The country has much higher government borrowing costs than peers such as Poland and the Czech Republic, while the Bux trades at about 7.5 times forward earnings compared with 10 times for Poland’s Wig 20.
Some of those gaps had already started to narrow in the run-up to the vote as polls showed Magyar gaining ground. There is still, though, scope for further gains. For one thing, the rally is not as crowded a trade as it might have been, absent concerns about rising energy prices caused by the conflict in Iran.
Nor was the scale of Magyar’s victory fully anticipated, as analysts at Fordham Global Foresight have pointed out. That removed the risk that Orbán might try to find some way to cling on. In the coming months, it should make it much easier to unpick Fidesz’s control over institutions such as the judiciary. That in turn increases the likelihood of a swift release of frozen EU funds that analysts at UBS reckon could boost GDP growth by up to 1 percentage point in 2027.
Hungary is, of course, a small market, but there will be a spillover effect. Foreign groups with material local businesses, such as lenders KBC, Erste Bank and UniCredit, could benefit from a reduction in windfall taxes levied under Orbán.
Most importantly, though, Hungary’s election could strengthen the broader thesis around the revival of Europe. Orbán frequently obstructed EU initiatives such as aid for Ukraine or a €1.8tn recovery package during the coronavirus pandemic. As a former Fidesz member, Magyar is hardly a federalist Europhile, but he is nonetheless keen to repair relations.
That should reduce the risk that, say, important financial reforms are held up because of a fit of pique over an unrelated foreign policy. At a summit last month that was supposed to focus on issues of competitiveness, such as creating more joined-up capital markets, the bloc’s leaders spent much of the time discussing Orbán’s opposition to Ukraine aid.
Investors had been encouraged by recent efforts to boost growth and investment across Europe. If Magyar’s displacement of Orbán removes one of the biggest sources of dysfunction in EU policymaking, it should improve the chances that these efforts actually succeed.
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