Hungary's financial market is heating up on expectations for the "post-Orbán" era. With Viktor Orbán, the former prime minister who ruled Hungary for more than a decade while clashing with the European Union (EU), stepping down, and the opposition led by pro-market, pro-EU figure Péter Magyar scoring a landslide victory, global capital is flowing rapidly into Hungary.
According to the Financial Times (FT), the Budapest stock market jumped about 15% this month, and shares of OTP Bank, the bellwether of Hungarian finance, rose 26% over the past month. Bond and foreign exchange markets also responded immediately. Yields on Hungarian Government Bonds fell by more than 1.2 percentage points, sharply lowering borrowing expense. The Hungarian currency, the forint, gained 3.6% against the euro. Analysts said expectations for a restoration of policy credibility after the Orbán era are being reflected in asset prices.
What investors are watching is President-elect Magyar's pro-EU line. Magyar also campaigned on introducing the euro in the early 2030s. Market experts are focusing more on the preparation process than on whether Hungary will actually adopt the euro. To join the eurozone, inflation, fiscal deficits, and government liability must be strictly managed to meet EU standards. Economists note that "the process of meeting the convergence criteria for adopting the euro itself will become a powerful reform driver that improves the structure of the Hungarian economy."
The possibility that EU funds frozen due to the Orbán government's illiberal-democracy course may be released is another factor lifting asset values. There is strong expectation that unfreezing EU money would help the Hungarian economy. Markets see that if Hungary establishes judicial independence and an anti-corruption framework, it could secure up to €12 billion (about 21 trillion won) in funding within the next year.
But the challenges are formidable. Hungary's current inflation and fiscal deficit levels fall far short of meeting the eurozone entry criteria. Hungary's fiscal deficit is 4.7% of GDP and the national liability is about 75%, exceeding the benchmarks (3% and 60%, respectively). Political conflict with Orbán's allies embedded throughout the administration is also a task for President-elect Magyar to resolve. The Magyar government must dismantle the "illiberal system" Orbán built and restore judicial and academic independence as well as anti-corruption systems. In particular, the high likelihood of clashes with the existing power network is seen as a key variable.
According to Politico Europe on the 19th (local time), Magyar's TISZA party, which toppled the 16-year "Orbán system," won a total of 141 of 199 seats. That is three more than the 138 seats projected by exit polls. As TISZA cleared the two-thirds threshold for constitutional amendments in the Hungarian parliament more comfortably than expected, President-elect Magyar will be able to push reform policies with greater force.