Regional Equity Strategy
We are up 1.5% on our bullish Spanish small caps view since it was entered in our asset class strategy on January 9 (played through the IBEXS index), and see potential for further gains over the next few months, due to an attractive technical picture and the index's exposure to improving eurozone demand.
With valuations on Turkey's Borsa Istanbul equity index at multi-year lows, we see the potential for a short-term rally. However, we believe the trend will remain one of weakness over the coming months due to a confluence of macroeconomic and political risk in 2014.
Our eurozone over US stocks view (played via the ratio of MSCI US to MSCI EMU) has performed well in recent trading on the back of a more pronounced retracement in US markets. Although up only 2.4% since initiation in August last year, we believe the recovery in eurozone growth in H114 will help bring eurozone stock valuations towards US levels.
Despite Romania's benchmark BET index posting modest losses over the past week, against the backdrop of a regional downturn in stocks, we are up 6.5% on our bullish Romanian stocks view since it was placed in our asset class strategy on November 4 2013.
Hungary's BUX equity index looks attractive from a long-term technical perspective, however we reiterate that the poor operating environment could hinder substantial gains ( see below).
Hungarian equities have retraced somewhat following a bullish break ( see above left), but resistance-turned-support is holding and we believe the index will now head to 20,000. As we have outlined previously, drugmaker Gedeon Richter is well placed for a sustained rise, ( see 'Short-Term Gains For Equities Following Break Of Resistance', 13 January) which will spearhead the bourse's gains. In addition, Hungary's macro outlook continues to improve ( see 'Positive Consumer Outlook Bolsters Rate Hike Call', January 8), valuations remain relatively low, with the index as a whole trading at a discount to book value of equity of 0.94x, and market sentiment towards regional growth is set to stay positive. However, we retain our neutral-to-bearish view on the BUX index over the longer term, with OTP Bank likely to face difficulties as a result of an obstructive operating environment for banks. Nevertheless, a break of the 20,000 level would look bullish and indicate further gains ahead.
|Potential For Bullish Break, Although Business Environment Concerns Linger|
|Hungary - BUX Equity Index, Daily (LHS) and Monthly (RHS)|