Hungary has made the transition from centrally planned to a market economy, with a per capita income of one-half that of the Big Four European Nations. Hungary continues to demonstrate strong economic growth and had work toward accession to the European Union.
The rapid growth of the investment fund market continued in the past 12-month, although there was a sharp drop in June 2003 because of changes in the monetary policy (weakened local currency, dramatically raised interest rates) that caused serious losses for domestic bond and money market funds. The growth of total fund's assets was 42% last year in US Dollar terms.
Mutual Funds became a widely applied form of savings, their proportion in the total households savings reached 10%. In the past 12-months there weren't significant changes in the preferences of the Hungarian investors, the proportion of bond and money market funds remained about 90%. The Real Estate Funds has witnessed a tremendous growth, which was supported by the boom in the property market, it provided an attractive investment opportunity to Hungarian investors. As a result the total assets of these type of funds has grown by 283% in the past 12-months. Their market share has reached 4.3%.
The growth of international investment funds was significant in the past 12-months, which was significantly higher than the overall growth of the market. Although these types of funds represent only about 5% of the whole fund market, in case of stock and balanced funds their market share has reached 50%.
Legal and regulatory developments
The new Capital Market Act introduced in 2002 had brought significant changes in the legal environment for the fund management companies. The main features are as follows:
-- broadened the fund activities (new activities: private portfolio management, investment advice, distribution of own units);
-- higher capital adequacy requirement, detailed operational rules and stricter personal requirements;
-- introduction of new type of funds;
-- different investment limits for different type of funds;
-- detailed regulation on derivatives.
The new law has initiated a basic restructuring process on the asset management industry. Most of the financial groups have decided to concentrate their collective efforts in the development of asset management companies, which lead to consolidation. As a result of the restructuring process, about 40% of the whole assets under management comes nowadays from other activities (pension funds, private portfolio management).
NEW PRODUCTS: Changes in the law in 2002, brought forth positive outlook, and the market was introduced with new types of funds (fund of funds, index tracking funds, hedge funds, new type of property funds), which enabled fund management companies to provide new products. Of these new opportunities the fund of funds product proved to be most successful; several new funds were created, providing efficient access to global securities markets through investments in foreign funds. Also two new closed ended hedge funds were successfully introduced in the last period.
CROSS BORDER DISTRIBUTION: After step by step liberalisation of foreign exchange rules in recent years and after the amendment of the capital market law in 2002, the Hungarian fund market became open to the distribution of foreign funds units, although public distribution still has to be approved by the Hungarian Financial Supervisory Authority. As a result of the liberalisation, 14 foreign funds have been introduced in the Hungarian market.
TRENDS OF HUNGARIAN FUND MARKET: Total NAV data of domestic funds for the period of 06.2002-06.2003 (in million USD)
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6.2002 7.2002 8.2002 9.2002 10.2002 11.2002 12.2002 1.2003 2.2003 3.2003 4.2003 5.2003 6.2003
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Money Market 64.7 62.9 640 631 652 714 841 996 1098 1110 1120 1164 975
Bond 2405 2353 2365 2445 2499 2632 2849 3019 3144 3232 3398 3654 3259
Stock 217 210 217 239 233 264 267 282 273 284 311 331 336
Balanced 96 95 97 68 96 102 104 79 79 103 109 121 83
Real Estate 55 57 58 59 60 64 92 119 137 162 190 225 211
Total NAV 3418 3344 3377 3442 3539 3776 4153 4495 4731 4891 5127 5494 4863
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Growth in local
Currency Growth in USD
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Money Market 42% 51%
Bond 28% 36%
Stock 46% 55%
Balanced -18% -14%
Real Estate 261% 283%
Total NAV 34% 42%
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06.2002 07.2002 08.2002 09.2002 10.2002 11.2002 12.2002 01.2003 02.2003 03.2003 04.2003 05.2003 06.2003
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Bond 16 16 17 23 25 26 30 32 34 37 39 45 49
Stock 98 92 94 120 106 128 125 140 136 143 157 166 162
Balanced 36 37 37 10 37 39 39 13 13 36 38 40 40
Total 149 145 148 153 168 194 194 185 183 215 233 251 251
As proportion Of the total
Fund market 4.40% 4.30% 4.40% 4.40% 4.70% 5.10% 4.70% 4.10% 3.90% 4.40% 4.50% 4.60% 5.20%
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