Fitch Ratings downgraded the sovereign ratings of Hungary (to BBB from BBB-plus), Bulgaria, Kazakhstan (by one notch to BBB-, the lowest investment-grade level) and Romania (by two notches to BB-plus from BBB) on Monday while warning that the ratings of South Korea, South Africa, Russia and Mexico are also in jeopardy.  European Union members Hungary, Romania, Bulgaria and the Baltic states “may not be able to handle their large foreign debt burdens, which could spark financial crises,” Fitch said, adding that problems in advanced economies “triggered extreme volatility in emerging market asset prices” and prompted “liquidity strains”.

It lowered its outlook on South Korea, Mexico, Russia and South Africa to negative from stable, while that of Chile and Malaysia were cut to stable from positive.

Authorities announced today that Hungary is preparing a financial aid package worth up to 600 billion forints ($3 billion, 2.3 billion euros) to boost domestic banks’ capital and help them refinance debts.  The aid package for “Hungarian banks of systemic importance” comes as part of the $25.1 billion standby loan for Hungary announced last month by the International Monetary Fund (IMF), the European Union and the World Bank.  The AP reports that “one of the risk factors for Hungary’s banking sector is the large proportion of loans given to home buyers and businesses in foreign currencies, especially in Swiss francs and euros.  With the forint’s exchange rate weakening drastically amid wide fluctuations, the risk that borrowers could default on repayments has increased.”  Fears that it would be unable to make debt payments and poor market liquidity caused the forint ...

Hungarian manufacturing continued to contract in October following a shocking performance in September, while exports drop sharply in the midst of a looming global manufacturing recession. All of which indicates that the real economy impacts of the recent financial turbulence is now about to make its presence felt. I think we are in for a real shocker in Hungary. October PMI Down Hungary's manufacturing industry contracted sharply in October, according to the latest PMI reading, which fell 5.2 points to hit 44.7 in October - a historic low, and 0.8 points below the previous worst reading registered in October 1998, according to the latest data from the Hungarian Association of Logistics, Purchasing and Inventory Management (HALPIM). Sharp Industrial Output Contraction In September Hungarian industrial production dropped the most in more than 16 years in September as the global financial crisis hit the economy and slowing growth in western Europe curbed demand for exports. Production ...

by Edward Hugh: Barcelona Yesterday, the Ukraine received a USD16.5bn loan from the IMF and the IMF at the same time said that it would agree with the Hungarian government on a rescue package in the coming days. Under normally circumstances this would be good news for CEE assets. However, it seems like the markets are totally giving up on CEE. This morning the Hungarian stock markets have dropped more than 10% despite the promise of an IMF package. ......it is worrying that the CEE markets continue to sell-off despite IMF’s clear commitment to support the region’s markets and economies. One might in fact see the lack of positive response to IMF’s rescue packages for Hungary and the Ukraine as an indication that these packages are in fact making the markets even more nervous that something “is seriously wrong in CEE”. Lars Christensen, Chief Analyst Danske Bank, CEE: Markets fail to respond ...

by Edward Hugh: Barcelona Hungarian Prime Minister Ferenc Gyurcsány announced yesterday (Wednesday) that the government had reached an agreement with commercial banks intended to protect the interests of those who have taken out foreign currency loans. The agreement, which is expected to be signed early next week, has three key components: 1) At the request of the debtor the banks will allow the duration of the loan to be extended (with fixed monthly instalments) so that the depreciation of the forint “does not place an unbearable burden on the debtors". 2) FX debtors who deem that exchange rate fluctuations carry excessive risks for them will be allowed to convert their foreign currency-based loan to a forint loan. In this case the banks “will accept this request and make the switch without extra charges". 3) If a debtor finds him- or herself in a position where he or she cannot pay the monthly instalments, e.g. due ...