REFILE-CEE MARKETS 2-Equities lead fall on concerns over Ukraine

Mon Mar 3, 2014 11:16am EST

(Adds region in headline)
    * Banks with branches in Ukraine fall
    * Forint, zloty drop against euro
    * Bonds rebound
    * Leu falls, Romanian central bank may intervene soon-dealer

    By Sandor Peto
    BUDAPEST, March 3 (Reuters) - Equities plunged in Central
Europe on Monday, also driving the region's main currencies
lower, due to worries that Ukraine is drifting towards war with
Russia.
    The Budapest Stock Exchange led the decline with
almost 4 percent fall as the shares of Hungary's OTP Bank
, which has some 140 branches in Ukraine, plunged.
    Moscow stocks fell even more after Russia seized 
Ukraine's Crimea region and tension was escalating between the
former Soviet states, with no fast solution in sight.
    "I am certainly going to be defensive towards Central
European assets, with the risk that financial contagion may
spread to the other regions under an escalation scenario," said
Societe Generale analyst Benoit Anne in a note.
    The stocks of Russian banks which own units in Ukraine
plummeted, with Sberbank shedding 15 percent. The
stocks of Western owners of Ukrainian banks also fell.
    Austria's Raiffeisen shed 8 percent and Italian
UniCredit almost 5 percent. France's Credit Agricole
 and Poland's PKO eased over 3 percent.
    "It's pretty heavy bloodletting, almost panicky selling
around the region," an equity trader said in Budapest.
    The forint and the zloty, the region's
most liquid units, fell against the euro to their weakest levels
since deadly clashes in Ukraine two weeks ago, which led to the
fall of Russian-backed president Viktor Yanukovich.
    The exports of the region's states to Ukraine are around
only 1-2 percent of their foreign sales, but a debt default or
war could have an impact in the region's markets.
    The Ukrainian crisis has weighed on the region's stock
markets in the past weeks and the losses deepened on Monday
because investors are pricing in the worst-case scenarios for
some stocks, given the Russian military intervention in Ukraine.
    OTP's shares traded at 3,752 forints at 1533 GMT, down 5.9
percent, rebounding from a session-low of 3,596.
    Erste Bank said in a note that a price of 3,300 forints
would mean that the stock prices in 1,000 forint loss per share
over Ukraine. One brokerage, Equilor has said that would be the
worst case scenario, assuming OTP loses all its investments in
Ukraine - which Equilor called an unlikely scenario.
    The shares of Hungarian pharmaceuticals firm Richter
, which has significant sales in both Ukraine and
Russia, fell 3.3 percent as a weaker Ukrainian hryvnia 
and Russian rouble cause exchange rate losses to the company.  
    
    CURRENCIES, BONDS HIT
    The forint has been the most vulnerable to contagion from
other emerging markets because Hungary is the region's most
indebted state, its central bank has cut interest rates sharply
and the country holds elections in April.
    The forint traded at 313.12 to the euro at 1528 GMT, down 1
percent from Friday, but still off last month's lows at 314.80.
    Some investors tried to push it towards its 324 record lows
several times last month amid some expectations that a plunge
could force the central bank to hike interest rates, like Turkey
did after a plunge of its own currency.
    Polish and Hungarian government bond prices rebounded by
late trade after sharp early falls. Poland's 2-year yields still
traded higher by 5 basis points at 3.06 percent.
    "Nerves over Ukraine have relaxed somewhat, but people are
still worried that there will be a military conflict there," one
Budapest-based fixed income trader said.
    The Polish subsidiary of Commerzbank, mBank, warned that any
escalation of the conflict was likely to hurt a Polish recovery
that has seen the manufacturing sector expand at the fastest
pace in more than three years.  
    "More bans on Polish agricultural products (from Russia) may
increase the downward pressure on food prices in Poland," the
bank said. "Interest rate hikes in 2014 seem unlikely now."
     The leu, whose volatility rose in the past weeks
due to a break-up of Romania's government, eased 0.4 percent
against the euro and dealers said it may be already near levels
where the central bank could intervene to defend the currency.
     "I think alarms have rung already. Any potential
intervention would be to slow down the pace of depreciation,"
said one trader in Bucharest.
    A split in the coalition left the government with a weak
majority in parliament. Political uncertainty in
Serbia also lifts the vulnerability of the dinar to
contagion as the country will hold elections later this month.
    Dealers said a rise in demand for euro from foreign banks
lifted turnover in the spot market, and the Serbian central
bank, which has been buying the dinar for weeks, continued to
intervene in the market to keep the currency stable.
    
                      CEE MARKETS SNAPSHOT AT 1628 CET
 ************************** CURRENCIES ************************
                             Latest  Previous   Daily   Change
                             bid     close      change  in 2014
 Czech crown                 27.338    27.325   -0.05%  -0.02%
 Hungarian forint           313.120   309.930   -1.02%  -5.16%
 Polish zloty                 4.194     4.170    -0.57%  -1.05%
 Romanian leu                 4.518     4.500   -0.40%   -1.28%
 Croatian kuna                7.649     7.649    0.00%  -0.41%
 Serbian dinar              115.950   115.800    -0.13%   -1.25%
 Note: daily change calculated from previous close at 1700 GMT
 **************************** STOCKS **************************
                             Latest  Previous   Daily   Change
                                     close      change  in 2014
 Prague                      991.44    1015.11   -2.33% +0.46%
 Budapest                  16992.22  17744.92    -4.24%   -7.32%
 Warsaw                     2417.07   2518.53    -4.03% +0.53%
 Bucharest                  6221.40   6435.58   -3.33%   -3.96%
 ***************************** BONDS **************************
                         Yield    Yield    Spread    Daily
                         (bid)    change   vs Bund   change in
 Czech Republic                                      spread
   2-year                0.775   +0.316   +66bps    +34bps
   5-year                1.167    +0.033   +56bps     +9bps
  10-year                2.193    -0.023   +63bps    +4bps
 Hungary
   3-year                4.970    +0.040   +476bps   +8bps
   5-year                5.100    +0.020   +449bps   +8bps
  10-year                6.020   +0.010    +446bps   +7bps
 Poland
   2-year                3.060   +0.050    +295bps   +7bps
   5-year                3.780   +0.050    +317bps   +11bps
  10-year                4.390  +0.030    +283bps   +9bps
 ******************* FORWARD RATE AGREEMENTS ******************
                              3x6     6x9    9x12  3M interbank
 Czech Rep                    0.400   0.470  0.500   0.37
 Hungary                      3.080   3.500  3.750   2.75
 Poland                       2.750   2.770  2.900   2.71
 Note: FRA quotes are for ask prices
 **************************************************************
 
 (Reporting by Reuters bureaus; Editing by Janet Lawrence)
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