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

After a series of downgrades, all three credit rating agencies – Moody’s, Standard & Poor’s and Fitch Ratings – now list Hungary’s sovereign debt in the lowest investment-grade category, with a negative outlook, meaning that a downgrade of just one more notch would place it in the speculative category. Due to the restrictions in investment policies, winding up in the “junk” category would have serious market consequences, reducing demand for both Hungarian government securities and the Hungarian currency, which, among other things, would mean that state debt could only be financed at the cost of higher yields and a weakening of the exchange rate. It is, therefore, imperative to implement the economic policy measures necessary to prevent such a downgrade. To understand the issues involved one
needs to examine which are the key factors that could lead to a downgrade, and to see where, in general terms, an imaginary line could be drawn between investment grade countries and states classed in the speculative category due to their reputation as relatively poor debtors.

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Global macroeconomic trends form an almost unchanged picture, with purchasing managers’ indices (PMI/ISM) continuing to rise, but with consumer confidence and the American real estate sector weakening somewhat. Political unrest in the Middle East and North Africa has not had an effect on forecasting indicators for the time being, although it may bring forward the start of the cycle of monetary tightening through increasing inflationary expectations.

Although industrial production in the euro zone periphery has finally gained momentum thanks to higher export orders, anxieties over interest rate increases nevertheless lead us to maintain our negative expectations with regard to Europe.
The lower than expected value of China’s purchasing managers’ indices points in the direction of a more rapid economic slowdown than anticipated. Although Russia and Brazil are the big winners as regards high prices of raw materials, it is questionable how long the oil price will remain high as a consequence of the supply shock.