Equity Capitalization in Hungary

 A Developing Landscape with Potential for Growth

In Hungary, as in much of continental Europe, there has been a long-standing tradition of reliance on bank financing for businesses, rather than utilizing the capital market. This has resulted in a relatively low stock market capitalization compared to other European countries. At the end of 2022, the share of stock market capitalization in Hungary stood at 14.1% of GDP, significantly below the EU average of 46.7%.

This disparity is not without consequences. A robust stock market plays a crucial role in fostering economic growth and competitiveness. It provides companies with an alternative source of funding, allowing them to raise capital for expansion, innovation, and job creation. Additionally, a well-developed stock market can attract foreign investment, further boosting economic activity.

The Hungarian government has recognized the importance of developing the capital market and has taken steps to encourage greater participation. These efforts include tax incentives for investors, regulatory reforms, and initiatives to promote financial literacy. The Budapest Stock Exchange (BSE) has also played a role in promoting the market, introducing new products and services to attract both domestic and international investors, such as the Xtend platform for small and medium-sized enterprises (SMEs).

Despite these efforts, the Hungarian stock market remains relatively small and illiquid compared to its European counterparts. This is due in part to the dominance of a few large companies, such as OTP Bank, MOL Group, and Richter Gedeon, which account for a significant portion of the market capitalization. Additionally, the lack of a diverse range of listed companies across various sectors can deter investors who are seeking a broader range of investment opportunities.

However, there are signs of progress. The number of listed companies on the BSE has been gradually increasing, and there has been a growing interest in initial public offerings (IPOs) from Hungarian companies. This trend is likely to continue as more companies recognize the benefits of accessing the capital market, such as increased visibility, enhanced credibility, and improved liquidity.

The rise of fintech and digital platforms has also contributed to the development of the Hungarian capital market. These platforms have made it easier for investors to access the market and have provided new opportunities for companies to raise capital through crowdfunding and peer-to-peer lending.

The COVID-19 pandemic and the Russian-Ukrainian war have undoubtedly had an impact on the Hungarian stock market, as they have on markets around the world. The market experienced a significant drop in early 2022 due to the war, but it has shown resilience and rebounded by the end of the year, reaching pre-war levels. The BUX index, the benchmark index of the BSE, increased by almost 40% in 2023, and the stock market capitalization grew by almost 50%, reaching 14,900 billion forints at the end of the year.

This rebound can be attributed to several factors, including renewed investor confidence, strong corporate earnings, and supportive government policies. The Hungarian government’s focus on economic recovery and growth, coupled with its commitment to developing the capital market, has created a favorable environment for investment.

Looking ahead, the Hungarian stock market has the potential to play a more significant role in the country’s economic development. A deeper and more liquid market would provide companies with greater access to capital, create jobs, and ultimately contribute to a stronger and more competitive Hungarian economy.