January 14, 2019 / 10:35 AM / 6 months ago

CEE MARKETS-Bucharest stocks approach 2-year lows on tax worry

    * Bucharest stocks fall 2.2 pct before partial recovery
    * New taxes weigh on the outlook of Romanian stocks
    * Romanian inflation retreats further as expected

    By Sandor Peto and Radu-Sorin Marinas
    BUDAPEST/BUCHAREST, Jan 14 (Reuters) - Romanian stocks
 fell as much as 2.2 percent on Monday, approaching
2-year lows as concerns over 2019 tax increases on the bank and
energy sectors have returned.
    Sentiment in Central Europe turned sour anyway as a surprise
fall in China's exports turned the highlight on global economic
slowdown concerns again, hitting Asian and European stocks.
    Bucharest's blue-chip index got within a one-percent
distance from its pre-Christmas 2-year lows reached after the
government announced plans for changes in tax and pensions
    The measures included a tax on bank assets, in an
unconventional way linked to interbank rates which are also in
the focus of monetary policy. Some details of its application
remain unclear.
    The measures are unlikely to keep the budget deficit below
the European Union's threshold, 3 percent of economic output,
and creating uncertainty in the business environment may make a
slowdown in economic growth bigger, analysts said.
    "Should foreign banks curb lending, as happened in Hungary
for instance (in the early 2010s), the adverse impact on the
cycle might well offset some of these (government) revenue
gains," Morgan Stanley analysts said in a note.
    Late on Friday, the European Commission also warned Romania,
which holds the EU's rotating presidency, over the government's
plans to decriminalise some forms of corruption.
    Bucharest's stock index halved its initial loss to 1.1
percent by 0936 GMT. Budapest's blue-chip index fell at
the same rate, retreating from a one-year high reached last
    The drop in Romania was led by an over 2 percent decline in
the shares of Banca Transilvania, one of the
country's biggest lenders.
    The leu shrugged off a continuing fall in
Romania's annual inflation to 3.3 percent in December from 3.4
percent in November. 
    The drop from levels above 5 percent last year to within the
central bank's 1.5-3.5 percent target range increases the chance
that the bank will not increase its interest rates further,
analysts said.
    "There are risks on the rise that Romanian rate setters
would not resume rate hikes (on the one hand due to banking tax,
on the other hand due to ECB postponement risks)," Raiffeisen
analyst Stephan Imre said in a note.
    With the Romanian disinflation process bottoming out, the
country's bonds could start to reverse the past weeks' sharp
decline in regional bond yields, he said. 
    An auction of 2023-expiry Romanian bonds could still create
demand around secondary market bids of 4.37 percent as the
bond's tenor is in demand from a broad range of investors, ING
analysts said in a note. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1036 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.5600   25.5660    +0.02%    +0.58%
 crown      >                                       
 Hungary    <EURHUF=  321.2000  321.4000    +0.06%    -0.04%
 forint     >                                       
 Polish     <EURPLN=    4.2948    4.2938    -0.02%    -0.12%
 zloty      >                                       
 Romanian   <EURRON=    4.6785    4.6830    +0.10%    -0.52%
 leu        >                                       
 Croatian   <EURHRK=    7.4350    7.4312    -0.05%    -0.34%
 kuna       >                                       
 Serbian    <EURRSD=  118.3000  118.4300    +0.11%    +0.00%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1007.42  1011.440    -0.40%    +2.11%
 Budapest             40441.43  40886.06    -1.09%    +3.33%
 Warsaw                2329.24   2335.10    -0.25%    +2.31%
 Bucharest             7162.05   7240.73    -1.09%    -3.00%
 Ljubljana  <.SBITOP    808.50    803.83    +0.58%    +0.53%
 Zagreb                1736.86   1734.51    +0.14%    -0.68%
 Belgrade   <.BELEX1    696.20    702.40    -0.88%    -8.60%
 Sofia                  568.54    567.46    +0.19%    -4.36%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.7070    0.0090   +230bps     +1bps
   5-year   <CZ5YT=R    1.7310   -0.0040   +207bps     +1bps
   10-year  <CZ10YT=    1.8370   -0.0170   +162bps     +0bps
   2-year   <PL2YT=R    1.3420   -0.0250   +193bps     -2bps
   5-year   <PL5YT=R    2.1700   -0.0250   +250bps     -1bps
   10-year  <PL10YT=    2.7460   -0.0100   +253bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.14      2.18      2.20      2.01
 Hungary                  0.25      0.46      0.68      0.13
 Poland                   1.73      1.73      1.73      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto, editing by Ed Osmond)
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