By Marton Dunai BUDAPEST, Dec 30 (Reuters) - Hungarian markets far outperformed regional peers in 2016 as ratings agencies restored the country's investment grade status and its improving economic outlook lifted shares and the forint, while regional peers battled waning market confidence and political problems.
Against a jittery international backdrop that included the surprise vote by Britain to leave the European Union and Donald Trump's victory in the U.S. Presidential election, regional differences marked Budapest as a winner.
Hungarian shares rose by a third in 2016, hovering just off a fresh all-time high of 32,040 on the last trading daay of the year. All blue chips benefited from sound fundamentals but the improvement in the country's financial sector helped the index the most.
Relations improved markedly between banks and the government of Prime Minister Viktor Orban, a keen user of unorthodox and often unexpected economic policy in the past. A heavy bank tax was eased after a landmark agreement in 2015.
Banks produced their best year in recent memory in 2016, with most of them returning to profits after years of heavy losses. They expect weaker profit but growing lending in 2017, the country's top banker told Reuters.
Shares of Hungary's biggest lender, OTP Bank, rose 40 percent this year.
Banks, meanwhile, dragged lower the Prague Stock Exchange's main index, which lost 3.8 percent in 2016, marking its lowest close since 2011.
The region's most liquid market in Poland added 5 percent this year but remains 25 percent below its 2007 all-time high.
The forint also benefited, adding 1.3 percent this year, versus a 3.8 percent drop by the zloty and a broadly flat Czech crown.
Hungary has been bolstered by three upgrades to its debt rating which returned the country to investment grade and helped it weather the storm on international markets better than peers.
The country's benchmark 10-year bond trades near recent highs, while Polish paper has yet to recover from an international sell-off that began on bets for an interest rate hike in the U.S. and continued on Trump's surprise victory.
The zloty and Polish bonds have also suffered from conflict between Poland's new nationalist-minded government and European institutions, as well as market worries over political stability and the country's fiscal standing.
The crown remained in the intervention regime by the Czech central bank, preventing it from strengthening beyond the level of 27 crows per euro for the whole year. The currency hovered just above that level for most of the year.
CEE MARKETS SNAPSH AT 0953 CET OT CURRENCIES Latest Previo Daily Change us bid close change in 2016 Czech crown 27.020 27.021 +0.00 -0.08% 0 0 % Hungary 311.03 310.80 -0.07% 1.16% forint 00 00 Polish zloty 4.4180 4.4114 -0.15% -3.62% Romanian leu 4.5290 4.5350 +0.13 -0.22% % Croatian 7.5620 7.5615 -0.01% 1.02% kuna Serbian 123.38 123.59 +0.17 -1.55% dinar 00 00 % Note: daily calculated previo close 1800 change from us at CET STOCKS Latest Previo Daily Change us close change in 2016 Prague 920.21 919.58 +0.07 -3.78% % Budapest 31916. 31847. +0.22 +33.4 99 87 % 3% Warsaw 1947.3 1946.3 +0.05 +4.75 7 2 % % Bucharest 7075.0 7072.2 +0.04 +1.01 9 8 % % Ljubljana 706.73 711.28 -0.64% +1.52 % Zagreb 1989.6 1991.3 -0.09% +17.7 3 3 6% Belgrade 716.66 714.72 +0.27 +11.2 % 7% Sofia 586.42 586.51 -0.02% +27.2 3% BONDS Yield Yield Spread Daily (bid) change vs change Bund in Czech spread Republic 2-year -0.878 0.014 -009bp +2bps s 5-year -0.227 0.015 +032b +0bps ps 10-year 0.463 -0.016 +028b -2bps ps Poland 2-year 1.989 0.003 +278b +1bps ps 5-year 2.803 0.004 +335b -1bps ps 10-year 3.55 0.003 +337b +0bps ps FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M interb ank Czech Rep Hungary Poland (WI 1.75 1.77 1.795 1.73 BOR=) Note: FRA are for ask quotes prices ********************************************************* ***** (Reporting by regional bureaux; Editing by Toby Chopra)