Index – Economy – Foreigners are crazy about Hungarian prices, they shop here

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The world of stock exchanges has undergone a major transformation over the past one and a half to twenty years, with stocks becoming increasingly popular with the public. “Less than 15 years ago, foreign investors still accounted for a large proportion of domestic stock holdings, at around 75% in 2010. However, in more recent times, this proportion has fallen to just under 40%: in other words, 15 years ago, three quarters of stocks were in the hands of foreigners, but if we look at international investors, now this proportion is only four in ten.”

Meanwhile, foreigners have achieved slow growth in the past two years, with their weight increasing from 42% to 44%.

– The key issue for foreigners and domestics is the pricing of Hungarian newspapers: the prices of Hungarian stocks have fallen very low over the past two years, explains Norbert Cinkotai, chief stock market analyst at K&H. “In other words, they are cheap. Therefore, it is not surprising that international investors are also increasingly paying attention to Hungarian stocks,” the expert notes.

He added: At the same time, the Hungarian economy is small and open, which actually also means that it is linked to the international economy in many ways, so foreign investors will always be there, and at the same time they can provide stability to a given market. The main question is how attractive the Hungarian market is to international investors.

How cheap are Hungarian stocks?

As an example of Hungarian stock pricing, the expert mentioned the development of the so-called 12-month forward price/earnings (P/E) ratio, which shows how many times one has to pay for 1 forint of profit.

Fifteen years ago, nearly 12 forints were paid for every HUF profit earned, but now it has been reduced to 6 forints, that is, the exchange rate/profit ratio has dropped from 12 to 6.

“This is generally true over the long term, and if the stock market index’s prices have fallen to lower levels, the forward-looking yield outlook may have risen,” the expert noted.

For example, Hungarian stocks have seen valuations (pricing) cut in half, while German stocks have not seen this. Fifteen years ago, German and Hungarian stocks could be purchased at similar prices, but now the discount has increased to 50%, which may also attract interest from foreigners.

The development of the benchmark index of the Budapest Stock Exchange is also telling, explains Sinkotai. “This year, the index has risen by more than 15%, outperforming the growth of the US Standard & Poor’s 500 Index, which is considered one of the most famous leading indicators in the world. The market does not really need better advertising,” says the expert.

(Cover photo: Kitti Kolumbán / Index)