House View – November 2023


Fuel prices played a major role in the reduction of the monthly pace: petrol stations are now charging 3.8% less than in September, as world oil prices fell from nearly USD 90 per barrel (1 barrel = 159 litres) to below USD 80 per barrel as a result of the weak global economic situation. Price tags on food items also show lower figures (-0.1%), although on a 12-month basis the two product groups are still down by 10% and 30% respectively. The last time we saw single-digit inflation was in April 2022 (9.5%), after which geopolitical crises and structural problems in the Hungarian economy pushed the indicator up to 25.7% by January this year.



News concerning our bond funds

With the end of the interest rate hike cycles, a good entry point to the developed countries’ government securities market is outlined.

USA 10-year government bond yield (2019-2023)

Source: Hungarian Central Statistical Office (KSH)

Yields on long-term government securities (maturing in 5-10 years) are peaking at decade highs: USA 10-year government securities currently pay around 5% per year in US dollars, while equivalent German bonds pay 2.6% per year in euros. A general decline in yields may lead to further increases in the price of these bonds.

Rising geopolitical risks are driving up the value of cash. With the prolongation of the war between Russia and Ukraine and the outbreak of armed conflict between Hamas and Israel, more and more investors fear that China, Russia and Iran, hostile to the Western world, will not be willing to cooperate in the 2024 US presidential and European Parliament elections. The rise in the threat of terrorism is also a significant item in the Blackrock Fund Manager’s Geopolitical Risk Index.

Blackrock Global Geopolitical Risk Index (2018-2023)

News concerning our equity funds

Two points are sufficient to define a straight line: for the second meeting in a row, the US Federal Reserve left the benchmark interest rate unchanged at 5.25%-5.5% on 1 November. This points to the end of the interest rate hike cycle, which could bring short-term strength to the New York Stock Exchange.

(Interest rates and the equity market tend to move inversely: higher interest rates are associated with weaker economic and equity market performance, while lower rates are good for companies and equity markets.)

Rise in the leading New York Stock Exchange indices on the day of the interest rate decision

source: WSJ, FactSet

The interest rate hike started back in March 2022, from virtually zero, when the Russian-Ukrainian war caused inflation – which later peaked at 9% – to rise.








Central European stock exchanges may perform well

Poland may be a real game changer, with pro-market parties winning the parliamentary elections overall, and an EU-compliant government is likely to be established. The country could receive frozen EU funds, which could give a boost to the zloty, the Polish economy and the Warsaw stock exchange as well (the only risk could be excessive populism). As the Hungarian-Brussels relationship also seems to be easing, the whole regional equity market could be back in the international spotlight.

Alternative investments

Gold, traditionally seen as a safe-haven asset, is enjoying a renaissance, with the global price rising by 6.8% in October (in dollar terms). At close to USD 2,000 an ounce (1 ounce = 28.3 grams), the London Precious Metals Exchange price is just shy of its historic high. The rise in gold prices is being driven mainly by the geopolitical tensions mentioned earlier, although it may also be partly due to the fact that bond yields – which are regarded as a competing investment – and the US dollar may be past their peak and that recession risks are resurgent in the equity markets.

News on currencies

The forint may perform well in the short term but weaker in the longer term. The rumour – also confirmed by the insider Financial Times – is that some or all of the frozen EU funds may arrive sooner or later. The Hungarian government is giving in to Brussels’ demands on a growing number of points: for example, it is easing sectoral extra-profit taxes (no bank tax hike, lower special telecoms taxes planned), which will boost confidence in Hungary and the forint. However, given that the structural problems of the Hungarian economy remain (inflation and the budget deficit may remain higher than expected) and therefore the national currency may weaken again later, it may be worth taking advantage of the temporary strengthening of the forint and considering converting part of savings into euro at a good exchange rate.



Investment Clock*

The Global Investment Clock has moved out of recession and into stagflationary territory (where high inflation is coupled with weak economic performance), although at least one more month of confirmation would be needed to confirm the trend reversal, according to the model. The global economic outlook is negative, which creates an unfriendly environment for risk assets (bond spreads and equities) and certain country groups (emerging markets). However, different regions are at different stages. The USA is expanding, Europe is stagnating and China is facing serious challenges.


*The first version of the Investment Clock was introduced by the US banking house Merrill Lynch, and the current model is an enhanced version of VIG Asset Management. The model shows our current place in the world economic cycle. Our portfolio managers use forward-looking indicators in respect of both growth and inflation to identify the expected behaviour of the economy and investment assets accordingly.

** Typical performance of investment assets in the given phase of the economic cycle:

 We have highlighted in green the assets that are likely to do well in the given period.
 We have highlighted in yellow the assets that are likely to do less well in the given the period.
 We have highlighted in red the assets that are not likely to perform well in the given the period.

The Fund Manager’s Tactical Asset Allocation

Given the uncertainty of the global economic situation, we prefer developed markets over emerging markets in all asset classes. However, compared to bonds and cash, the equity market now looks more promising.

The weights show the relevant valuation for a given country, region and asset class, which provides portfolio managers with a basis for structuring portfolios and building positions to take, thereby helping them to take advantage of the opportunities offered by the markets.

The table is based on our Investment Clock and quadrant analysis***.

***Quadrant models help us identify investment target markets with the best prospects. Quadrant combines the tools of fundamental and technical analysis and also takes into account macroeconomic conditions, valuation indicators, the technical picture and sentiment factors (i.e. long- and short-term drivers).


VIG funds – sample portfolios

The sample portfolios have been constructed in line with the Investment Clock and the Tactical Asset Allocation, as follows:

We picked 4 investment funds from each of our own portfolios.

In each of the three currencies, the prudent portfolio targets 40% equity and 60% bond type investments, while the dynamic portfolio focuses on 60% equity and 40% bond type investments.

We are reducing the bond weighting compared to the previous portfolio, and with interest rate hike cycles coming to an end, the high interest rate environment offers good investment opportunities, especially on developed countries’ government securities markets. On the equity markets, a year-end “Santa Claus rally” could develop on the stock exchanges of developed economies, while stock exchanges in the Central European region are emerging as a strategic entry point, thanks to improving relations with the EU and good corporate results. The weight of gold continues to be justified by existing geopolitical risks. The forint could weaken again after a temporary strengthening, so it is worth putting some of the savings into euro.

Current composition of focus funds

VIG Alfa Investment Fund

The fund delivered a positive return in October despite the unfavorable capital market environment, as it has been following a risk-averse investment strategy since July. The fund currently holds a higher than average proportion of liquid assets, part of which it intends to use to buy attractively priced securities in the current sell-off, increasing its equity exposure by 2% in October (OTP Bank, Shopper Park), which still only amounts to 14%. In the near future, further risk enhancement is expected in the fund, as good yield/risk entry points may emerge. The fund’s position in the forint is neutral.

VIG Opportunity Developed Markets Equity Investment Fund

In October, the fund had a negative return but outperformed the benchmark index. The negative return was due to a sell-off in developed markets. High interest rates started to have an impact on equity markets and investors reduced the risk in their portfolios. We approached this by trying to buy stocks that had fallen unduly. We therefore continued to increase our exposure to a silver mining company, which we sold after a rally. We bought Disney shares at the end of the month when the price fell below $80. In October, we sold all remaining Hungarian DKJ exposure, so now the fund is immune to forint movements.

VIG Developed Markets Government Bond Investment Fund

Weak growth and easing inflation in the Eurozone, together with a moderately dovish FOMC meeting outcome, drove government-bond yields down; the 10Y UST yield fell to 4.65%, while the 10Y Bund yield dropped to 2.70%. Equities were well supported in this environment and are set to close the month with gains. Credit spreads tightened across the board. EUR-USD steadied above 1.06, while USD-JPY fell back towards 150, after having reached a peak of nearly 152. We didn’t make meaningful changes to the fund’s composition throughout last month.

VIG Megatrend Investment Fund

Global equity markets were able to rise in the last trading days of October, but still failed to turn the monthly performance into a positive one, and October saw the third consecutive month of negative monthly performance, the first since March 2020. Taking advantage of the equity market correction, we continued to increase our exposure to cybersecurity companies. With the widespread adoption of artificial intelligence, cyber-attacks will become even more sophisticated in the future, driving demand for these solutions, while the industry has already delivered double-digit annual profit growth. Among our investments in the fund, our software development investments in artificial intelligence (Servicenow, Adobe) and innovative healthcare companies (Novo Nordisk, Eli Lilly) performed particularly well in October. The electric car sector has performed poorly over the past period, with investors unhappy about the price competition and thus the pressure on margins. In addition, the renewable energy sector is also underperforming and these companies are heavily indebted, so the high yield environment is putting pressure on their share prices.

VIG Developed Market Short Term Bond Investment Fund

Weak growth and easing inflation in the Eurozone, together with a moderately dovish FOMC meeting outcome, drove government-bond yields down; the 10Y UST yield fell to 4.65%, while the 10Y Bund yield dropped to 2.70%. Equities were well supported in this environment and are set to close the month with gains. Credit spreads tightened across the board. EUR-USD steadied above 1.06, while USD-JPY fell back towards 150, after having reached a peak of nearly 152. Initial allocation of the fund remained mostly unchanged last month.



ESG is today’s “hot” topic

Few in the world of investments have not encountered it, and even fewer are fully aware of the regulatory environment surrounding ESG. This is partly because there is still no clear position on many issues.

However, it seems that this could change next year and we can finally be in the clear in many respects.

The current regulatory confusion is such that even the very concept of sustainable investment is not clearly defined. This is because there is a difference in the wording of the Taxonomy and the SFDR Regulation, so clarification is definitely required. According to the SFDR, only investments that are aligned with the taxonomy and passive funds that follow an EU climate-focused benchmark can currently be considered sustainable. However, given that the concept of sustainability also includes impact, products that promote sustainability based on certain indicators should also be included.

The SFDR Regulation itself is currently under review. The reason to this is that it was not designed to categorise funds, yet the market ranks them on this basis (Articles 6, 8, 9). An open consultation on the issue was launched until the end of December to decide whether to validate and clarify the currently applied market practice or to introduce four completely new categories.

The arbitrary use of the words “ESG” and “sustainable” in fund names, with different underlying meanings, can be stopped. In the future, only funds with a specific proportion of their investments meeting sustainability criteria will be allowed to use these words in their names, using quantitative thresholds.

Last but not least, a Taxonomy relevant to the Social Pillar could also be developed. We believe this to be one of the most pressing issues, yet it has been put on the back burner and we can only expect to see a development on this issue around August next year.

However the regulatory environment evolves, we at VIG Asset Management will try to keep abreast of everything as soon as possible, and integrate the changes into our existing and soon to be launched ESG focused funds.



Legal information

This is a marketing communication. To ensure you make a well-founded investment decision, you should inform yourself thoroughly about the fund’s investment policy, the possible risks of the investment and the dealing charges from the fund’s key investor information document, official prospectus and management regulations, all of which are available at the fund’s points of sale and on the company’s website ( Past performance cannot be relied on as a guide to future performance. The future yield achieved through the investment may be subject to tax. The tax and stamp-duty implications associated with specific financial instruments and transactions can only be accurately assessed in light of the individual circumstances of each investor, and these may change over time. It is the responsibility of the investor to enquire about the tax implications of the investment. The data contained in this communication is intended for information purposes only and does not constitute a solicitation to invest, a recommendation to buy or sell, or investment advice. VIG Befektetési Alapkezelő Magyarország Zrt. accepts no liability for any investment decision made on the basis of this communication or for the consequences of such decision.

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