BUDAPEST Hungary's markets are set for a weaker open on Monday, knocked back by tax measures that could hit prospects of reaching an international aid deal and the earnings of energy firms and banks.
A year since its shock request for an International Monetary Fund and European Union financial backstop, junk-rated Hungary announced measures late on Friday that ran counter to the lenders' advice and could dent hopes of recovery from recession.
"The interpretation of most of the market will be that the government snubs the IMF and the EU," said David Nemeth, analyst of ING Bank.
"Market reaction will be clearly negative. Some (foreign parent) banks could further cut activity in Hungary and prepare for getting rid of Hungarian units as soon as it's possible."
Prime Minister Viktor Orban's government launched its third package of measures in just two months to keep the budget deficit below the EU's 3 percent threshold next year.
It will raise the corporate tax on energy utilities to 50 percent from 19 percent, lift taxes on public utility distribution networks and make Europe's highest bank tax a permanent part of the tax system at 2013 levels.
Analysts said OTP Bank OTPB.BU and oil group MOL (MOLB.BU), two of Central Europe's biggest firms, could take the brunt of the hit in the Budapest Stock Exchange .BUX.
"They could fall 2-3 percent -- a cautious estimate," said Erste Bank analyst Jozsef Miro, adding that a possible rise of Asian and European stock markets could moderate the impact.
Daniel Gyuris, acting head of the Hungarian Banking Association declined to comment on the measures. The head of the group, Mihaly Patai resigned recently due to an earlier decision to raise taxes on the financial sector.
MOL spokesman Domokos Szollar said "the devil hides in the details, we need to analyze details before any comment".
Miro said MOL's earnings were likely to take a hit even though energy firms are allowed to halve the extra tax above 19 percent by deducting their investments. MOL invests heavily in Hungary and abroad.
Analysts said high liquidity in global markets could limit the immediate shock from the new measures on the forint and on government bonds which have yields between 5.9-6.9 percent, much higher than yields in developed markets.
"There will be some reaction by the forint and bonds but it's possible that the brunt of it will come later if international sentiment worsens," Nemeth said.
(Reporting by Sandor Peto; Editing by David Cowell)