International investors have signaled they are ready for the previously unthinkable – political change after Hungarian Prime Minister Viktor Orbán’s 16-year rule will possibly end on the 12th of April, Reuters reports.
Hungary’s parliamentary elections on Sunday, the 12th of April, are seen as the most sensitive in Europe this year, especially given Orbán’s close ties to the Kremlin and ongoing friction with Brussels. The sharp drop in share prices of companies linked to Orbán and currency market indicators, which show significant fluctuations in the forint, suggest investors are hoping for change.
Viktor Szabó, emerging markets debt portfolio manager at Aberdeen Investments, said the market is preparing for Orbán’s defeat. The current prime minister’s position has become fragile after three years of economic stagnation and rising living costs, and his warm relations with the Kremlin have not helped either. Polls show him significantly ahead of his main rival, Péter Magyar, but political analysts have pointed out that various outcomes are possible, including Orbán remaining in power.
The focus is currently on Hungarian government bonds. A victory for Magyar and his Tisza party could also lead to the release of at least some of the European Union funds that were frozen over concerns about the threat to democracy and the rule of law in Hungary. In total, Hungary is earmarked for 18 billion euros, equivalent to about 8% of Hungary’s projected GDP in 2026. Szabo explained that
EU funds would give a much-needed boost to investment, which has been a weak spot in Hungary in recent years.
Budapest currently has one of the largest budget deficits in the EU, exceeding 5% of GDP. The debt-to-GDP ratio is also 70% and rising, meaning Hungary is just one notch away from the lowest rating in the S&P Global ratings.
Political experts, however, stress that the election result may not be what polls currently suggest, raising risks for investors hoping for the most market-friendly outcome – a Magyar and Tisza victory. Political scientist Andrea Szabó said that anything is possible at the moment – from a Tisza majority to a Fidesz victory. She warned that Fidesz’s support in the polls may not show up completely. The far-right Our Fatherland party could also gain enough support to determine the final outcome and pave the way for Orbán to remain prime minister.
In any case, it is clear that the EU’s longest-serving leader will not give up without a fight, and he could complicate the formation of a new government. Although the Hungarian forint and stock and bond markets have revived in the hope of a Tisza victory, without a stable majority in parliament, reversing even Orban’s most controversial policy decisions will be difficult. JP Morgan experts believe that Tisza’s chances of winning a supermajority are about 5-10%.
The election outcome will also affect other countries, such as Ukraine. Currently, Orban has used his veto power, blocking the granting of a 90 billion euro EU loan to the war-torn country. The outcome is also important in other European countries, where right-wing populists hope to gain greater power.
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