BSE: The Gateway to Emerging Europe

The Budapest Stock Exchange (BSE) is the main trading venue for Hungarian stocks and provides investment opportunities to the fastest growing part of the EU, the Central and Eastern European region (CEE). Therefore, though it is one of the smaller European bourses, it is now – more than ever before – worth a closer look.

Following its deep economic crisis in 2008/09, Hungary embarked on a path that many considered unorthodox, but which by now has delivered an impressive turnaround. There are many surprising facts to be learned about Hungary as a European investment destination, and the Budapest Stock Exchange as a market in which to hunt for investment value. What’s more, access to this market is much easier for British investors than most would expect.

Master Investor spoke to Richárd Végh, the CEO/Chairman of the Budapest Stock Exchange, about the past, present and future of this market and what it means for private investors from Britain.

Swen Lorenz: During the late 1980s and early 1990s, Hungary was a pioneer of economic reform and the privatisation of formerly state-owned companies. I am old enough to remember the international headlines Hungary enjoyed when listing IBUSZ as the first public company on the newly reopened Hungarian stock market. Talk us through the evolution of the BSE during the subsequent three decades.

Richárd Végh: It is a pretty long story to tell in such a short interview. As you alluded to, the early ‘90s was a very intense period for the Hungarian capital markets. In those years many large companies joined the stock exchange and some of them are still the flagships of the BSE. During that time, we launched one of the first futures markets in Eastern Europe, made the change from floor trading to electronic systems and launched our options market. What followed was a period of consolidation and internal growth, with the market becoming more open and international. Perhaps, as a consequence of this internationalisation, Budapest Stock Exchange became part of the Vienna based CEE Stock Exchange group in 2010.


The next years were definitely not easy. The economic crisis hit Hungary hard and it can be said that the Stock Exchange fully felt the consequences, with the interest from both investors and companies dropping off significantly. A new chapter began in late 2015 when the Hungarian Central Bank became the majority shareholder of Budapest Stock Exchange. Back in local hands, we benefit now from a new and coherent strategy, an ambitious development plan and the full support of the most important local stakeholders. We are hopeful that the future is bright and that we will be in the international headlines again soon, just as in early ‘90s.

SL: Interactive Brokers, one of the UK’s largest brokers with 430,000 clients, offers direct access to the Budapest Stock Exchange. You’ve got a real champion in Thomas Peterffy, the founder of Interactive Brokers, since he is of Hungarian heritage. What I was surprised to hear about was the significant number of other British brokers that can execute trades directly on the BSE, including de Giro, Novum, JM Finn, Cave & Sons, Killik & Co, and others. Presumably the BSE has actively been taking steps to make it easier for international investors to gain access?

RV: The feedback we hear from our existing base of foreign brokers and investors is that Hungary is an easily accessible market. Our infrastructure is modern and reliable, our trading system runs on the Xetra platform – same as the German exchanges – and getting connected and ready to trade on our infrastructure is straightforward.

Konzum was one of the best performing stocks globally with a 6,733% gain in 2017.

Other than that, we put a lot of emphasis on our strategy of directly approaching foreign partners and we have been very active in recent years in attending various events abroad, introducing our services. Our participation at the Master Investor Show is part of our efforts to open our market further and attract new players.

SL: Talk us through the size of your market. How many companies are listed there, and what other key stats do we need to know about?

RV: Currently, 37 companies are listed with a market capitalisation of roughly £23 billion. The average daily turnover in cash equities has risen constantly in recent years, reaching about £36 million daily in 2017. Besides the cash equity market, we also manage a derivatives markets in which the currency, index and single stock futures are the most liquid products.

SL: Are there any particularly well-known or otherwise noteworthy companies you’d like to point out?

RV: For many years the backbone of the Hungarian capital markets was our ‘big four’: OTP, the largest bank and a major regional player; MOL, the national oil & gas company, which has been an active player internationally for quite some time now; Gedeon Richter, a globally active pharmaceutical company; and Magyar Telekom (former Matav), the leader of the local telecommunications sector.

Recently, after a long draught, three new players – Duna House, Alteo, and Waberer’s – joined the stock exchange, raising funds through our platform, and all three of them are present at your event. They are all very well run and promising companies in our view, and we encourage the investors attending your show to visit their booths. 

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Finally, it is worth pointing out that 2017 marked the resurgence of the small-to-mid cap sector with a significant batch of issuers enjoying stellar 3-4-digit returns in 2017. For example, Konzum was one of the best performing stocks globally with a 6,733% gain in 2017, and OPUS GLOBAL became the 5^th largest company after its fantastic 1,794% performance last year. We hope that investors will continue to be rewarded in the long term and that the dynamism and the spirit of innovation among the local small and mid-caps will take them to new heights in the coming years.

Again, I want to encourage your readers to visit our booth, where our colleagues are happy to provide more details and information about all our issuers.

SL: Hungary did make negative headlines during the time of the 2008/09 financial crisis, when it became the first EU country forced to ask for financial aid. However, I realised during my research that your stock market has doubled in value since 2015, and is up a staggering 40 times since the early 1990s. Has Hungary left its fiscal and economic challenges behind?

RV: I would say that the resurgence of the market is a clear sign that the skies have cleared over the Hungarian macroeconomic environment. In fact, the turnaround story of the Hungarian economy is impressive. The unemployment rate recently reached a multi-decade low of 3.8%, significantly below the pre-crisis years. The debt-to-GDP ratio, a major worry for European economies in recent years, is on the decline as well, from almost 81% in 2011 to 74% today. Also, the state finances are in excellent shape, with the budget deficit for 2019 falling to 1.9% of GDP – the first time in recent decades that this indicator was lower than 2%, and a major improvement from the 5.4% deficit in 2011.


We see the economy growing steadily and in a balanced manner, with the deficits and imbalances which plagued the economy in 2008-2009 being proactively addressed by the decision-makers.

SL: The Daily Telegraph mentioned Hungary in a headline about the global tourism industry the other day, simply describing the country as being “out”. When I started to dig around, I came across a global competitiveness ranking from EIU, where Budapest was ranked above much-hyped cities like Lisbon and Tel Aviv. You must feel like the BSE itself is an undervalued and underappreciated gem right now?

RV: Hungary and Budapest rank highly in many respects, from competitiveness to quality of life and even Olympic medals. Also, the performance of the market shows that confidence and expectations are at a high level among the investors following us. What we probably lack is the more sophisticated marketing and PR machine of the better-known bourses. This is the main reason we are here.

SL: For foreign investors, there is always the currency issue. Hungary hasn’t joined the euro yet. What do our readers need to know about the risks and opportunities posed by investing into equities that are valued in Hungarian forint?

RV: The forint has been very stable for the last five years trading in a tight 11% range against the euro during this period. For comparison, the volatility of the pound sterling or the US dollar versus the euro has been a lot higher during the same period (31% and 20% range respectively). In addition, the feedback we get from our existing foreign investor base is positive as far as the currency is concerned.

The turnaround story of the Hungarian economy is impressive.

SL: Leaving politics aside and looking purely at the bigger economic picture, do you see not just Hungary, but potentially the entire Central/Eastern European region taking a different course to Western Europe over the next ten years? Forgive me for implying a certain bias by asking the question in this way – it’s just something I have been wondering about of late. Am I off the mark by assuming that will be the case?

RV: For the Central and Eastern European region the convergence story has been the major investment theme for more than a decade now. Investors expect that our region will eventually reach the wealth and living standard levels enjoyed by Western Europeans. Despite the 2008-2009 setback which weakened the narrative, we do see this topic gaining more and more strength again. This is clearly shown in the major improvements in the last few years, with, for example, wages growing at double-digit levels, along with infrastructure and the quality and diversity of services improving by the day.

There is still a lot to do, especially in terms of SME productivity, raising the GDP per capita at purchasing power parity and increasing the competitiveness of our workforce and product split, but we are optimistic that the gap will continue to close between Western and Eastern Europe, and this can only translate into a higher growth potential for our region.

SL: Last but not least, to counter the Daily Telegraph’s headline, what sites and regions of your home country should our readers visit, if and when they make it to Hungary?

RV: Without overly analysing the sources and information from the Daily Telegraph article, I can say that tourism has been a major growth driver for the last decade. Budapest is widely seen as a pearl of Central and Eastern Europe and has made it into the holiday plans of millions of visitors every year. The beautiful architecture, the spas, the famous local gastronomy and the lively cultural scene are just some of the attractions bringing tourists to Budapest.

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Nature destinations are also very popular, starting with the Balaton lake, the Danube and its attractive natural hotspots, and ending in the wilderness of the Hortobagy plains, which is one of the oldest natural parks in Europe and a paradise for bird lovers.

Finally, and probably less well-known in the UK, Hungary is a wine-loving country, dotted with countless vineyards belonging to small traditional producers. We are really proud of our wines and I can recommend the rural area around Villany or the surroundings of Eger (also a historical place thanks to its castle) for beautiful wine trips.

About Richárd Végh

Richárd Végh was appointed to the Board of Directors of the Budapest Stock Exchange (BSE) in December 2015 and became Chief Executive Officer on 1 January 2016. He was also elected as the Chairman of the Board on 16 March 2017. He worked at the Central Bank of Hungary (MNB) from October 2013 to December 2015 as Director of the Capital Market Supervision Directorate and was responsible for prudential supervision of capital market institutions in Hungary and market surveillance operations concerning market manipulation, insider trading, and unauthorised financial services. He represented MNB in several national and international organisations including the Board of Supervisors of ESMA. He has been a member of the Board of Directors of the Hungarian Investor Protection Fund (BEVA) since 2013 and a member of the Board of Directors of the Central Depository and Clearing House (KELER Ltd.) from 2016. From 2004 till 2013 he worked at Budapest Stock Exchange in various positions.

About the BSE

The Budapest Stock Exchange Ltd. (BSE) creates a platform for Hungarian companies to grow and prosper. Our mission includes providing small and medium sized firms with expertise and financial support needed to join the stock exchange, as well as improving the financial culture in our society. BSE has a considerable history: it was originally established in 1864 and re-established after the fall of communism in 1990. Today we are following our 2016-2020 strategy to become more attractive for investors and companies alike. Our blue-chip companies represent the Hungarian economy, with the total market capitalisation of listed firms standing at approximately $33.8 billion. We are set to further develop the capital market ecosystem where issuers are creating exciting opportunities for domestic and international investors, both retail and institutional. We recently introduced Xtend as a special market for medium sized companies to join the exchange. Furthermore, BSE has a joint programme together with ELITE, a company of the London Stock Exchange Group, which gives mentorship to up-and-coming Hungarian companies to learn about the ways they can grow using diverse financing opportunities. BSE is powered by Xetra, one of the fastest and most reliable trading systems in the world.