House View
June 2023
The pace of price increases in Hungary continued to slow in May. The year-on-year inflation rate was 21,5%, below market expectations of 22.3%. Food prices started to stagnate in April and this trend mostly continued in May with a month-on-month increase of 0.1%. At the May rate decision meeting, as expected, the Monetary Council began to normalize interest rates, with a first step of cutting the effective rate by 100 basis points, cutting the ON deposit rate to 17%. This also lowered the upper end of the interest rate corridor, with the ON rate now standing at 19.5%. With monthly cuts of 100 basis points, the base rate and the ON deposit rate could thus converge in September, after which the base rate is expected to remain at 13%. Around the end of the year we may see some rate cuts from the base rate. The forint did not weaken much on the announcement, indicating that the market had already priced in the news. Let’s not forget that foreign investors still have access to the MNB’s 17% weekly deposit, which makes the forint very attractive. Let us also note that the forint yield is still significantly high compared to the surrounding countries.
With the interest rates cut, the yield curve also moved lower during the month. Short yields in particular fell, with the 3-year yield ending the month 26 basis points lower. The long end of the yield curve was mixed, with 10-year yields up 17 basis points and 15-year yields down 24 basis points. The news at the beginning of June caused some renewed turbulence in the bond market. Two new elements were added to the 60% minimum security limit introduced earlier. According to the recent interpretation securities funds may invest up to 5% in debt securities other than HUF-denominated government bonds and must hold 20% of their liquid assets in Hungarian Treasury Bills. The measure led to a sharp increase in demand for Hungarian government bonds at the beginning of the month, and thus to a significant fall in yields. The currently not very bright fiscal situation should thus start to improve in the coming months, but new measures may arise (to prop up revenues or decrease expenses).
Within Asset Classes | Underweight | Slight Underweight | Neutral | Slight Overweight | Overweight |
---|---|---|---|---|---|
Bonds | ![]() |
||||
Within Bonds | |||||
United States | ![]() |
||||
Europe | ![]() |
||||
Emerging Markets | ![]() |
||||
HGB | ![]() |
As expected, the US fiscal crisis was resolved by the end of May. To an outsider, it was odd that such a thing could happen again after 2011, when everyone knew full well that the US would not declare bankruptcy. If it did, it would have unforeseen consequences that no one would dare to risk. Looks like this had more smoke than flame.
But what was really important in May was how much the US Federal Reserve would raise its benchmark interest rate. The odds of a rate hike have varied several times in the past, depending on the macroeconomic data. Of course, inflation figures and expectations have had the biggest influence on the forecasts, but in the end the Fed has done what the Fed always does. It didn’t surprise the markets, didn’t do anything unexpected, and raised the base rate by 25 basis points to 5.25%. The wording of the Fed’s statement at the post-rate hike briefing was much the same as it was in 2006 at the top of the rate hike cycle, deleting the phrase “FOMC expects further rate hikes are needed”, but there was no mention of the possibility of easing, and the balance could still tip towards tightening. At the same time, the FOMC acknowledged that credit conditions have tightened and that these are likely to put downward pressure on economic activity. Jerome Powell also stated in his press conference that the removal of the reference to further rate hikes is a significant change and that, we got strong hints that the rate hike will end at the 5.25% level under current conditions, but nothing is carved into stone. The decision was not influenced by the debt limit problem and was taken independently of it.
According to Powell, although wage growth is not the primary cause of inflation, it should also fall back to around 3 percent. Corporate margins and profits have widened sharply over the inflationary period – in essence, he cited profit growth as the main cause of inflation – but he expects them to normalize, or fall. Overall, he sees a greater chance of soft-landing than a recession and sees no serious problems in the economy, with events so far apparently not reaching the pendulum threshold for a monetary turnaround, only giving sufficient ammunition to bring it to a halt. The question is, how will the Fed react if the macro numbers start to deteriorate significantly? There are already signs that the slowdown will be more severe than the Fed envisages. According to the Senior Loan Officer Survey, credit demand is weak to a degree not seen since 2009, and some real-time indicators suggest that US GDP growth had weakened quite a bit by early May. We are in for an interesting summer, the question is whether the Fed will cut rates if the macro data erodes significantly.
The Chinese economy does not seem to be immune to the slowdown. Although it showed some signs of recovery in April, this trend reversed in May. China’s Caixin manufacturing PMI, which mainly measures the export/ICT sector, fell to 49.5 in April from 50 in March, suggesting that the trend growth in Chinese industry had stalled by mid-spring and external demand is weak. However, survey respondents expect above-trend growth in the future, especially in the second half of the year, after government support is expected. It is interesting to note that in China, too, the economy is expected to slow significantly without state support. Exports are a little better off as they grew slightly better than expected at 8.5 per cent year-on-year in April, with imports falling by a larger 7.9 per cent, mainly due to the collapse in commodity prices and lower than expected internal growth in China, which helped China’s trade surplus to swell to over USD 90 billion during the month. Chinese firms thus continue to push exports out of necessity, partly with political support, in the face of weak domestic demand. Chinese inflation was just 0.1% year-on-year in April, weaker than expected and a two-year low. The decline in producer prices also deepened, reaching 3.6 percent. This suggests that China may once again be an exporting center of deflation in product prices, with competitive pricing in the international market. China is also not expensive in services, which rose by just 1 percent on a year-on-year basis. It is interesting to note that, for example, Chinese inflation is now much lower than in Japan, an almost unprecedented situation.
The table below shows the Manager’s views on the different asset classes and the weightings within each asset class. Markets have risen a lot since the October lows, which is not uncommon in a bear market. In the US, the May unemployment data came in higher than expected again, which continues to give the Federal Reserve room to raise interest rates further, which in turn gives a greater chance of a recession.
Within Asset Classes | Underweight | Slight Underweight | Neutral | Slight Overweight | Overweight |
---|---|---|---|---|---|
Equity | ![]() |
||||
Within Equity | |||||
Developed Markets | ![]() |
||||
Emerging Markets | ![]() |
||||
Central and Eastern Europe | ![]() |
||||
Brasil | ![]() |
||||
India | ![]() |
||||
China | ![]() |
||||
Turkey | ![]() |
||||
South-Korea | ![]() |
||||
Taiwan | ![]() |
||||
South-Afrika | ![]() |
||||
Mexico | ![]() |
||||
Indonesia | ![]() |
||||
In September, investors were already speculating about how long the US Federal Reserve would raise its benchmark interest rate, and when the moment would come when it would decide that it was high enough to contain inflation but not yet push the economy into recession. Since a lower interest rate environment is a prerequisite for a market turn, investors are trying to interpret any macro-economic data in the direction that would support the view that interest rates are already high enough that it is time for the Fed to stop. You can already see in the global economy that high US interest rates are causing serious problems. In September the British financial system almost collapsed when trading in British government bonds stopped, and the Bank of England had to step in to avoid total chaos. Another negative effect of high US interest rates is the strong dollar. This makes it difficult for emerging markets to repay their dollar-denominated debt. At the moment, it looks as if until the Fed communicates that it will not raise the base rate any further, neither the currency nor the equity markets can breathe a sigh of relief.
The following table shows the outlook for the Aegon Hungary Investment Fund Management Company Limited by Shares (Investment Fund Management) focused funds. The positions refer to the month of September, 2022, and depending on the current data and market developments these investments may change significantly.
Portfolio | Summary of last month | What could make our forecast wrong | |
---|---|---|---|
Aegon Moneymaxx Total Return Investment Fund | The fund posted a negative return in December. On the bond side, we further reduced our position in long-dated, dollar-denominated emerging market government bonds in December. During the month, we managed to take advantage of a slight rise in prices and sold a small amount of euro-denominated Ukrainian paper. Our objective throughout the month was to reduce the risk of the fund. Polish yields also fell a lot last month, so we sold our entire Polish government bond exposure. The interest rate risk of the fund was reduced to 3 by the end of the month. On the equity side, we sold the Indonesian exposure and increased the exposure to China and the global emerging markets. The equity weight at the end of the month was 23%. On the FX side, we further increased the forint position against the Polish zloty, leaving the fund with a long position of 14% against the euro and the dollar, and 16% against the zloty and the Czech koruna. | The biggest risk to the fund could be the fall of the equity markets and the expansion of emerging market bond spreads. | |
Aegon BondMaxx Absolut Return Bond Investment Fund | The fund still keeps its Ukrainian exposure, and waits for improvement in the Ukrainian-Russia war; we decreased exposure to Qatar, added the US and German government bonds with further intention to raise exposure to the core rates markets while decreasing Hungarian risk further. | In addition to the increase in credit spreads, the rise in rates in the mid-curve would be unfavorable for the fund. | |
Aegon Alfa Absolut Return Equity Investment Fund | The Fund achieved a negative return in December. During the month, the 5% Nasdaq position was closed when the index fell back to buy our level, and the 30% EURHUF position was closed when the forint strengthened to 400 against the euro. Although we remain positive on the forint, in the short term, turbulence in the equity markets could have a negative impact on it. If the euro weakens back to around the 420 level, we will buy forint again. The Hungarian bond position is unchanged in the fund, the book yield was around 10% at the end of the month. We continue to hold small cap Hungarian equities, our view is that Hungarian and regional equities are extremely undervalued relative to other markets. | The fund’s performance would be negatively impacted by a sudden fall in the stock market for which we would not have enough time to prepare. | |
Aegon Maraton Acitve Mixed Investment Fund | The fund posted a negative return in December. The November bond rally corrected in December and this had a negative impact on the fund’s performance. This was somewhat offset by the fact that the foreign currency exposure was largely hedged. During the month, the Nasdaq and emerging market futures exposure was stopped out when certain technical levels were broken. In contrast, we continued to add to the Polish exposure due to the very fundamentals. The fund’s currency exposure is 95% hedged. Our strategic view is that economies are approaching a recession phase, so we continue to hold a larger than usual bond exposure. | The excessive strengthening of the forint against regional currencies and the sudden fall of the regional stock market would have an adverse effect on the fund. | |
Aegon Panoráma Total Return Equity Investment Fund |
The fund achieved a positive return in December. During the month we only made a few tactical trades in the silver and gold markets. We took advantage of the fact that silver was relatively cheap compared to gold. At the end of the month the commodity and equity weight was 6% in total. On the bond side, we further reduced our interest rate risk, which was now only 0.2 years at the end of the month. On the FX side, we reduced our 7.50% forint short position to 0%. |
A sudden fall in the stock market would negatively affect the performance of the fund that we would not have enough time to prepare for. | |
Aegon Central-European Equity Fund | The fund posted a negative return in December and underperformed its benchmark index. The underperformance was mainly due to being overweight against the benchmark index. On a country level, Austria, Hungary, Romania and Poland are overweight, with the Polish overweight further increased in December. In contrast, Czech equities are underweight. At the sector level, the materials and consumer discretionary sectors performed well, while the energy and utilities sectors underperformed. Overall, due to long positions, the fund is overweight the benchmark index at around 107%. | The fund’s performance would be negatively affected by a large, sudden fall in the Central European stock market prices, especially in the overweight sectors and regional markets, which would mean a larger drop compared to the benchmark. | |
Aegon MegaTrend Equity Fund of Funds | The fund posted a negative return in December. The global equity markets fell again last month. Central bank tightening and corporate profit recession are now worrying investors, and this had a negative impact on the fund’s investments. The worst performers have been the renewable energy and commodity scarcity sectors related to the energy transition. In contrast, it was the emerging market internet sector that significantly outperformed the developed market internet sector in December. We continue to see potential in this sector, and are therefore overweighting it. During the month we increased the weight of the European insurance sector due to the ageing social megatrend and good pricing. We also increased our exposure to the infrastructure and water sectors. In contrast, we reduced our weight in the mobile payments sector. In 2023, EPS growth margins for growth stocks relative to value stocks will widen significantly as pricing has also normalized since the Covid outbreak and generally in periods of low economic growth investors look for structurally sound growth themes. The fund is at 92% against the benchmark index overall. | A widespread stock market sell-off would negatively affect this fund. | |
Aegon Russia Equity Investment Fund | The Fund Manager has completed the conversion of the depositary receipts in the Fund into local market shares, thus the proportion of GDRs in the Fund has decreased significantly. The Fund Manager has completed the conversion through the custodian in all possible cases, and after the conversions there still remain 4 shares that are not registered in the Russian local market: Magnit, Phosagro, X5 and Yandex. The latter is not a depositary receipt but a Nasdaq listed share.
For friendly non-resident investors, the market opened on September 12th, in line with the preliminary indications. As previously reported, access to the converted or Russian local market shares will theoretically be available after the opening of the market for foreign investors, on which the Moscow Stock Exchange has published a detailed presentation. Only foreign investors will be able to trade on this platform, and the proceeds from the sale will be placed in a so-called “S-account”. The funds credited to the “S” account are restricted, cannot be freely used for investment or repatriated (converted into other currencies), and are conditional claims that can only be used under the conditions set by the Russian state at any given time. Although the first days of trading have shown a positive picture, but due to the limited access, this does not give any indication of the market value of Russian securities. The number of companies on the list of strategic companies has not changed over the past month. According to the presidential decree, only investors from ‘friendly’ countries and majority-owned foreign companies are allowed to trade in these companies, while investors from ‘non-friendly’ countries, including Hungarian investors, are expected to be banned both this year and the next. The sanctions remain in force and the net asset value of the Fund’s series cannot be determined. The Fund Manager’s access to the Russian equity markets is still not guaranteed and therefore no sale or redemption of units can be made. Therefore, the conditions for resuming continuous trading are still not met. |
The performance of the fund would be negatively affected by a further escalation of US and European sanctions and a sudden devaluation of the ruble. | |
in 2021
1st place | Fund Manager of the Year: VIG Befektetési Alapkezelő Magyarország Zrt. |
1st place | Emerging Portfolio Manager of the Year: Zoltán Szűcs |
1st place | Best Free Bond Fund of the Year: Aegon Emerging Europe Bond Fund – Zoltán Szűcs és Vitaliy Poplavets |
1st place | Best Long Bond Fund Of The Year: Aegon Polish Bond Fund – Gábor Németh |
1st place | Best Absolute Yield Non-Derivative Fund of the Year: Aegon MoneyMaxx – Ádám Bakos |
2nd place | Best Emerging Market Equity Fund Of The Year: Aegon Emerging Market ESG Equity Fund – György Pálfi, Péter Richter |
in 2020
1st place | Fund Manager of the Year: VIG Befektetési Alapkezelő Magyarország Zrt. |
1st place | Portfolio Manager of the Year: András Loncsák |
1st place | Best Free Bond Fund of the Year: Aegon Emerging Europe Bond Fund – Zoltán Szűcs és Vitaliy Poplavets |
1st place | Best Long Bond Fund Of The Year: Aegon Polish Bond Fund – Gábor Németh |
1st place | Best Absolute Yield Non-Derivative Fund of the Year: Aegon Alfa – András Loncsák |
2nd place | Best Emerging Market Equity Fund Of The Year: Aegon Russia – György Pálfi |
in 2019
I. helyezett | Best Money Market Fund of the Year: Aegon Money Market Fund |
II. helyezett | Best Free Bond Fund of the Year: Aegon BondMaxx R series |
II. helyezett | Best Emerging Market Equity Fund Of The Year: Aegon Russia |
II. helyezett | Best Global Equity Fund of the Year: Aegon Emerging Market ESG B Series (previously: Aegon Asia) |
III. helyezett | Best Long Bond Fund Of The Year: Aegon Polish Bond Fund P Series |
in 2018
1st place | Emerging Portfolio Manager of the Year: György Pálfi |
1st place | Best Absolute Yield Non-Derivative Fund of the Year: Aegon Alfa – Ádám Bakos, Gábor Németh, Zoltán Szűcs |
1st place | Best Absolute Return Fund of the last 10 years: Aegon Alfa – Ádám Bakos, Gábor Németh, Zoltán Szűcs |
1st place | Best Domestic Money Market Fund of the Year: Aegon Money Market Fund |
2nd place | Best Free Bond Fund: Aegon Bondmaxx Total Return Bond Fund |
3rd place | Best Absolute Return Non-Derivative Fund: Aegon Moneymaxx Express |
3rd place | Best Free Bond Fund: Aegon Emerging Europe Bond Fund |
Detailed information on the investment policy, distribution costs and potential investment risks of the funds can be found in the official prospectus and fund rules of the fund on our website. The information provided on this website is only for informational purposes and nothing on this website shall be considered a solicitation to buy, an offer to sell, or recommendation for securities, other financial products or services. Past performance is no guarantee of future performance. VIG Befektetési Alapkezelő Magyarország Zrt. does not take responsibility for the investment decisions made on the basis of this announcement and its consequences.