Beyond general information of the Funds, the portfolio reports offer a strategic overview on the latest performance.

Equities performed extremely well in July, as the S&P500 index rose by 6.88% in dollar terms and the BUX by 5.77% in the local currency, while the USD-denominated MSCI EM Equity Index, which represents emerging markets, rose by 8%.

Share prices rose mainly on the back of favourable macroeconomic figures and news, such as the announcement by the International Monetary Fund at the start of the year of an improvement in its global-growth forecast for 2010 from 4.2% to 4.6%, while China showed year-on-year GDP growth in the second quarter of 10.3% combined with an easing of inflationary pressure.

The US economy expanded by an annualized 2.4% in the second quarter, which, although representing a slowdown compared to the figure of 3.7% for the previous quarter, appears to have been sufficiently convincing for investors, especially in light of earlier declines, to further increase their exposure to equities.

At the beginning of August, however, the markets began a correction, and even the persistently favourable surprises of the corporate reporting season were unable to prevent the decline. From the firm resistance levels of 1120-1130 points, the S&P 500 index took a sharp downward turn, accompanied by substantial trading volumes, in the direction of the X axis of the graph. At the same time, the good news for investors keeping their savings in Hungarian forints was that the forint was able to remain relatively stable despite the fall in international risktaking propensity, holding at levels of 280 forints to the euro.

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A review of the Hungarian IMF programme at the beginning of July revealed that the government was not a constructive negotiating partner, prompting the international body’s representatives to pack their bags. With the IMF’s departure, the opportunity has evaporated (at least for the time being) for us to draw the remaining IMF/EU funds or conclude a fresh agreement in the event of a negative market environment. The overwhelming majority of analysts and commentators have interpreted the development negatively. In reality, the dependence on foreign financing of the Hungarian economy – and within it the Hungarian state – is a given as our external debt is considerable. Although this state of dependence cannot be altered in the short term, we can change whom we are dependent on. But with the IMF’s departure, our dependence on the international market has only increased, and the latter is more unpredictable…

It is no wonder if the initial reactions have been negative, with our markets underperforming in recent months. Most articles and analyses point out that some sizeable amounts will mature in the years 2013-2014, which might have been spread out in the event of a fresh IMF programme. This aspect seems to have come to the forefront in terms of pricing: securities with short or mid-term maturities (due in 2011-2014) have grossly underperformed in the past two months. Naturally contributing to the rise in yields on shorter-term securities is the constantly present risk that a major interest rate hike may be needed in defence of the forint – as indicated by the interest hike already priced in this year in the case of derivatives (swaps, FRAs).

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