Hedge Funds Bet Against Hungary

According to the New York Times, Hungary may soon be the new darling of hedge funds as more funds look for a country to bet against. Now that the bank stocks in France and Belgium have crashed and the bond yields of Greece, Italy and Portugal have peaked, hedge funds and bond investors alike are looking to Hungary. It was one of the first countries to get bailed out when the International Monetary Fund stepped in during the early days of the financial crises and has since undergone a severe retrenchment.

A Matter of Precedence

Businesses, banks, consumers, and even the government are cutting back. While Hungary is still in the throes of brief growth spurt driven by exports, it is still on the brink of a second recession. Many investors are betting that Hungary will play out to the same tune, Greece, Ireland and Portugal did, and adopting the derivatives positions and currency holdings to do so.

Where the Money’s At

As Hungary’s Central Bank governor, Andras Simor, is keeping rates as high as possible to keep the currency strong, prompting credit default swaps to more than doubled in the last three months. The high rates are also causing money, in general, to vacate the country and a lot of hedge funds are developing positions to take advantage of that trend. For instance, Tiger Management’s Julian Robertson is shorting the Hungarian forint.