Hungarians demonstrated a strengthening inclination to set aside financial reserves amidst the coronavirus crisis. As a result, the financial assets of the population have increased by 5% since the end of last year despite many households witnessing a drop in disposable income. The most popular products in the savings market in the first three quarters of 2020 were current account deposits, government securities and cash, with two thirds of new funds pouring into these assets. These developments are testament to a rise in risk aversion. Although some investors ventured into stocks, losses on these trades nearly equaled the amount invested in them.
The gross financial assets of Hungarian households increased to HUF 63,804 billion by the end of September, which is 5.3% higher than at the end of 2019, according to data published by the National Bank of Hungary this week. Households’ net financial assets, calculated by reducing liabilities (mainly bank loans), increased at a similar rate, by 4.9%. Economists highlighted that the moratorium on mortgage repayments helped boost households’ financial assets by as much as HUF 800 billion.
The most important forms of savings remained current account deposits, government securities, cash and investment fund certificates. It is worth noting that a part of the funds kept in current accounts and cash cannot strictly be considered savings as these are used for payment purposes.
The fact that certain forms of savings grew rather rapidly in the first three quarters of the year says a lot about the effects of the coronavirus crisis on the Hungarian population. The absolute winners are current account deposits, which have grown by 13% since the end of 2019, followed by cash, which has increased by 10.0%. Government securities came in third, with an 8.5% rate of expansion. A breakdown of net transactions shows that since the beginning of 2020 HUF 32 out of each HUF 100 in new funds remained in current accounts, HUF 25 has gone into government securities, HUF 19 has been kept in cash and HUF 24 has been set aside in other forms of investments. The three most popular forms of savings typically carry low risk, demonstrating that Hungarians are shying away from riskier financial assets amidst the uncertainties brought about by the pandemic.
Stock markets still appealing
Notwithstanding the general decline in risk appetite, stock market investments have skyrocketed since the beginning of the year, showing that certain households sought to take advantage of the extreme swings in the market. The amount of new funds flowing into stocks was HUF 252 billion, out of which HUF 133 billion was invested in the second quarter of the year, when stock prices tumbled. Nevertheless, data shows that losses on these investments amounted to HUF 207 billion in the period, meaning that most investors closed their positions with a loss.
Despite the gravity of the second wave of the pandemic, the outlook for stock investors may be improving as some analysts forecast a significant market rebound in 2021.
A V shaped recovery is coming?
In a research note published earlier this week, strategists at global investment house Morgan Stanley predicted a “V-shaped” economic recovery for next year. This, coupled with greater clarity on Covid-19 vaccines and continued support from governments and central banks in major economies, offers a favorable environment for stocks and credit next year. In an outlook for 2021, the strategists recommended that investors overweight equities and corporate bonds against cash and government debt. Volatility is set to decline, and investors should be “patient” in commodity markets, the research note said. “This global recovery is sustainable, synchronous and supported by policy, following much of the ‘normal’ post-recession playbook,” they wrote. “Keep the faith, trust the recovery,” the note added.
The Morgan Stanley team doesn’t expect a smooth path upwards and noted that significant challenges remain. Risks include a worse-than-expected Covid-19 winter wave and a return to austerity in the longer term.
Meanwhile skeptics argue that the short-term outlook is challenging as nations resort to lockdowns to fight a resurgence in virus cases and lawmakers bicker over the size of U.S. relief spending.
Morgan Stanley joins JPMorgan Chase & Co. and Goldman Sachs Group Inc. in painting a positive outlook for equities. A JPMorgan strategist said U.S. election results “create a bull case” for markets, while analysts at Goldman Sachs expect society to “normalize gradually” next year.
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