Is Hungary about to witness fall 2008-like volatility all over again?

Hungary is mired in a double whammy of declining economic data and forced austerity from the IMF. H1 2010 GDP was -0.6% s.a. and as global growth concerns come to light, it can only spell trouble for Hungary’s already-weak internals. On top of that, there exist about $2.5t in Hungarian mortgages > 5yr denominated in other currencies, namely the Swiss Franc, as presented in the chart below. This means that the entire Hungarian homeowner collective is leveraged into a massive carry trade financed by the ever-surging Francs that denominate their suddenly-surging mortgages, while the Forints they earn in and save with are plunging on ever-increasing economic deterioration in their home nation.

Hungarian foreign-denominated mortgage notional

And with the recent euro decline, large supplies of euros are being converted into Francs again, as the CHF safe haven bid is back with EURCHF hitting a new cycle low. The SNB’s intervention attempts in the spring proved futile, so CHF regional strength may be here to stay in the foreseeable future, which has vast implications.


Bringing the Hungary story all together, a rising CHF and declining HUF both have fundamental and technical basis for the foreseeable future and trading timeframe. The picture gets even more interesting when the CHFHUF chart is considered. It is in a very long term cup & handle-esque pattern, and is approaching June highs around 220, which correspond to March 2009 highs as well. If this round of risk aversion continues, it will likely send CHFHUF breaking out into new crisis highs and the charts suggest a massive move would result. This is one of the most bullish charts I’ve ever seen for such a long timeframe and unless something big happens, Hungary could be thrust back into the spotlight as a very relevant investment (or divestment) theme. I will be going long CHFHUF on any selloff to the 212-215 region.


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