Worried about the effect of rising rightwing populism in Europe on global markets? Have a peek at Hungary. A Brexiter’s dream date, its populist prime minister Viktor Orban regularly lambasts the EU for its immigration policies and has curtailed press freedom at home. Some of his fellow EU members would like his country kicked out. Those in the market take a more sanguine view.

Hungary’s economy is doing very nicely. It has had low single-digit GDP growth 12 quarters in a row, while inflation has steadily fallen. Real incomes are rising. Unemployment has halved to under 6 per cent in just four years, boosting private consumption. Interest rates appear to have bottomed; the National Bank of Hungary left its main policy rate unchanged again this week, at 0.9 per cent.

Mr Orban’s government has used some unorthodox methods, including nationalising the pension system, encouraging banks to buy up government debt and cutting taxes on banks. Whatever works: Hungary’s US dollar sovereign bonds trade at the smallest yield spreads to equivalent maturity US Treasuries since 2012. S&P Global Ratings upgraded the country’s debt last week to triple B minus.

Therein might lie a problem. Much of the rating upgrade had long been priced into bonds. The local Bux stock index (in US dollar terms) has stormed ahead, outpacing the MSCI emerging markets index by 23 percentage points in the past year. It trades at 12 times forward earnings, not far off decade highs. OTP, Hungary’s largest bank, has led the way. More forints in the pockets of the average Hungarian have boosted its banking system; non-performing loans have started falling.

It may be galling to some that Mr Orban’s rightwing agenda has done wonders for Hungarian asset prices. And it is true that Hungary can ill afford to lose EU funding for infrastructure projects, worth 3 per cent of its GDP. Sadly for liberals, investors’ view of populist policies is that they sometimes work.

Email the Lex team at lex@ft.com



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