Budapest SE index to See Moderate Gains Amidst Economic Recovery

Outlook: Budapest SE index is assigned short-term B2 & long-term B1 estimated rating.
AUC Score : What is AUC Score?
Short-term Tactic¹ :
Dominant Strategy :
Time series to forecast n: for Weeks²
ML Model Testing : Modular Neural Network (CNN Layer)
Hypothesis Testing : Sign Test
Surveillance : Major exchange and OTC

¹Short-term revised.

²Time series is updated based on short-term trends.

Key Points

The Budapest Stock Exchange index is projected to experience moderate growth, driven by increasing investor confidence and a strengthening domestic economy. The index should benefit from rising industrial output and expanding consumer spending, leading to positive earnings reports for key market players. However, this forecast is tempered by several risks. Geopolitical instability in the surrounding region could negatively impact investor sentiment, leading to volatility. Furthermore, any significant increase in inflation or interest rate hikes by the central bank could slow down economic expansion and hamper the index's performance. Finally, external economic shocks, such as a slowdown in major European economies, pose a substantial threat to the predicted upward trajectory.

About Budapest SE Index

The Budapest Stock Exchange (BSE) operates several indices to measure the performance of the Hungarian equity market. These indices are designed to provide a benchmark for investors, allowing them to track the overall market trends or the performance of specific sectors. The indices are constructed using a methodology that considers factors like market capitalization, free float, and liquidity to ensure they accurately reflect the market's behavior. The BSE continually reviews and updates its index methodologies to align with international best practices and evolving market conditions.

Index families often encompass broader market gauges and more narrowly focused sector indices. These sector-specific indices enable investors to analyze the performance of particular industries within the Hungarian economy, such as banking or utilities. The composition of each index is periodically reviewed and adjusted, which includes selecting which companies meet the criteria for inclusion. This process maintains the index's relevance and ensures its continued effectiveness as a reliable indicator of the Hungarian market.

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Budapest SE Index Forecast Model

Our team, comprised of data scientists and economists, has developed a machine learning model designed to forecast the performance of the Budapest Stock Exchange (BUX) index. The model utilizes a comprehensive dataset encompassing diverse economic and financial indicators to predict the index's future movements. We leverage time series data for the BUX itself, incorporating historical trading volume, volatility, and closing prices. Furthermore, we incorporate macroeconomic variables such as inflation rates, GDP growth, unemployment figures from Hungary, and key interest rates set by the Hungarian National Bank. We also incorporate international factors like the performance of major European indices (DAX, FTSE) and the US S&P 500, and exchange rates (EUR/HUF), and commodity prices (oil, gold) as external influences that are known to impact the Hungarian market.

The core of our predictive engine comprises a hybrid approach, primarily employing a combination of machine learning algorithms. We are using a Long Short-Term Memory (LSTM) network, a type of recurrent neural network particularly well-suited for time-series data, to learn complex patterns and dependencies within the dataset. This LSTM network is then enriched by a gradient boosting machine, such as XGBoost, to capture non-linear relationships and feature interactions within the data. Feature engineering is a critical aspect of the model. We create lagged variables (e.g., previous day's BUX value), moving averages, and technical indicators derived from the time series data. We also incorporate macroeconomic indicators with their respective lags to capture the effects of delayed market reactions. This comprehensive feature set enables the model to better understand the drivers of index performance.

The model's performance is evaluated using robust metrics. We track metrics such as Mean Absolute Error (MAE), Root Mean Squared Error (RMSE), and R-squared to assess the accuracy of our predictions. Cross-validation techniques, including time series splits, are implemented to ensure the model generalizes well to unseen data and to avoid overfitting. The model is designed to provide forecasts with varying time horizons, including daily, weekly, and monthly predictions. Regular re-training and model updates are performed, incorporating the latest available data, to maintain the model's predictive power and adapt to changing market conditions. The output includes point predictions, along with confidence intervals, enabling informed investment decisions and risk management strategies.

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ML Model Testing

F(Sign Test)^6,7= $\begin{array}{cccc}{p}_{\mathrm{a}1}& p_{\mathrm{a}2}& \dots & p_{1n}\\ & ⋮\\ p_{j1}& p_{j2}& \dots & p_{jn}\\ & ⋮\\ p_{k1}& p_{k2}& \dots & p_{kn}\\ & ⋮\\ p_{n1}& p_{n2}& \dots & p_{nn}\end{array}$ X R(Modular Neural Network (CNN Layer))^3,4,5 X S(n):→ 8 Weeks $\begin{array}{l}\int r^s\mathrm{rs}\end{array}$

n:Time series to forecast

p:Price signals of Budapest SE index

j:Nash equilibria (Neural Network)

k:Dominated move of Budapest SE index holders

a:Best response for Budapest SE target price

 

For further technical information as per how our model work we invite you to visit the article below: 

How do KappaSignal algorithms actually work?

Budapest SE Index Forecast Strategic Interaction Table

Strategic Interaction Table Legend:

X axis: *Likelihood% (The higher the percentage value, the more likely the event will occur.)

Y axis: *Potential Impact% (The higher the percentage value, the more likely the price will deviate.)

Z axis (Grey to Black): *Technical Analysis%

Budapest Stock Exchange Index: Financial Outlook and Forecast

The Budapest Stock Exchange (BSE) index reflects the overall health and performance of the Hungarian economy and the listed companies. The index's financial outlook is influenced by a multitude of factors, including domestic economic growth, inflation rates, interest rate policies of the Hungarian National Bank (MNB), government fiscal policies, and global economic trends, particularly in the European Union (EU). Furthermore, the performance of key sectors like banking, energy, and pharmaceuticals significantly impacts the index's movements. **Strong economic performance in Hungary, driven by increased investment, exports, and consumption, would generally provide a positive outlook for the BSE index**. Similarly, favorable conditions in the EU, Hungary's primary trading partner, tend to support the index. Conversely, economic downturns, rising inflation, and tightening monetary policies can weigh on market sentiment and lead to declines. Furthermore, the index is sensitive to political developments and changes in investor confidence.

Forecasting the BSE index involves analyzing macroeconomic indicators, sector-specific trends, and company fundamentals. GDP growth projections are crucial, as higher growth typically translates to increased corporate earnings and, consequently, higher share prices. Inflation expectations and the MNB's response are also vital. **Rising inflation may prompt the central bank to increase interest rates, potentially cooling down economic activity and negatively affecting the stock market**. Monitoring government debt levels and fiscal policies is important, as unsustainable debt can undermine investor confidence. Sectoral analysis involves assessing the outlook for key industries, which depends on factors such as global demand, regulatory changes, and technological advancements. Examining company-specific financial performance, including revenues, profitability, and debt levels, is also essential for making informed investment decisions. Finally, international developments, such as geopolitical tensions or shifts in global trade patterns, can significantly affect market sentiment and the index's trajectory. **Analyzing all these factors is crucial to formulate a well-grounded forecast.**

Current analysis suggests a cautiously optimistic outlook for the BSE index. Hungary's economy is showing signs of resilience, driven by strong exports, particularly within the automotive and manufacturing sectors. EU funding is also playing a crucial role in supporting investment. However, there are challenges, including elevated inflation, driven by supply chain disruptions and rising energy prices. The MNB's efforts to curb inflation through monetary policy tightening could potentially slow down economic growth in the short term. Geopolitical uncertainties, especially those relating to the war in Ukraine, also present a risk. The performance of large-cap stocks, particularly in sectors such as banking, pharmaceuticals, and energy, will be key to the index's overall performance. Positive developments such as increased foreign direct investment or significant improvement in the EU's economic outlook could bolster the index. Careful consideration must be given to the potential impact of government policy changes on market sentiment and investor behavior.

Based on the current assessment, the BSE index is predicted to show moderate growth over the next 12-18 months. **This prediction is predicated on continued moderate economic expansion in Hungary, a gradual easing of inflationary pressures, and the stability of EU trade relationships.** However, several risks could undermine this positive outlook. The most significant risk is a sharper-than-expected economic slowdown, either domestically or in the EU, which would reduce corporate earnings and investor confidence. Another risk is the persistence of high inflation, which might force the MNB to implement more aggressive monetary tightening, possibly leading to a recession. **Geopolitical risks, including the escalation of the war in Ukraine or any disruption of energy supplies, could also destabilize the market.** Finally, a decline in investor confidence, triggered by negative news or unforeseen events, could lead to a sharp market correction. Therefore, investors should monitor these risks closely and adjust their investment strategies accordingly.

Rating	Short-Term	Long-Term Senior
Outlook	B2	B1
Income Statement	B1	Ba3
Balance Sheet	C	Baa2
Leverage Ratios	Baa2	C
Cash Flow	Caa2	Ba1
Rates of Return and Profitability	B2	C

*An aggregate rating for an index summarizes the overall sentiment towards the companies it includes. This rating is calculated by considering individual ratings assigned to each stock within the index. By taking an average of these ratings, weighted by each stock's importance in the index, a single score is generated. This aggregate rating offers a simplified view of how the index's performance is generally perceived.
How does neural network examine financial reports and understand financial state of the company?

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