Since the free fall of last autumn the Budapest Stock Exchange has recovered strongly and was further bolstered this month by the publication of 1997 economic results.

These were better than expected in virtually every area, with improved GDP, exports up, imports up by less than expected and a $900m improvement in the trade gap. Industrial output was also up by more than 8% in real terms.

Attila Vago, an analyst at Concorde Securities in Budapest, expects the buoyant trends to continue. We would expect the economy to grow by some 5% this year, providing a huge impetus to the equities market," he said. "Expect the chemicals, pharmaceuticals and specifically the energy sector to drive the market upwards. The final part of privatisation will be completed with the flotation of the electricity utilities, which are likely to mirror the spectacular performance of the Démász stock, currently trading at 210% of its par value."

Vago expects the energy, construction and telecommunications sectors together to push the BUX, which closed last year around the 8,000 mark, towards a five- figure benchmark.

Balázs Báthary, head of sales-trading at CAIB London, agrees that such a figure is within reach by the end of this year. "A conservative estimate would be that the index would peak at around 9,500 but given the impact of the recent Mátav listing, and the fact that there are more electricity utilities to come to the market even greater growth cannot be ruled out."

Báthary pointed to surrounding countries and their good first quarters, and said this had a positive effect on the Budapest market. He also believes there will be steady growth in the Hungarian market as it matures. "Not so long ago if we saw $2m-3m daily turnover we would be content, but now we are looking at $40m-50m which compares favourably with any eastern European market."

He would like to see new second-tier listings to make the market more representative of the economy as a whole. "I believe we will see IT, food processing and retail companies merging and seeking listings, which will help to balance the market."

On the fixed income front analysts are similarly upbeat about the prospects for the next 12 months. Petra Kren, at Austria Bank in Vienna, expects the elections to have little impact on the market, nor to signal any change in economic policy, although May and June may see a slight weakening of the currency as is normal around election time. "The tight fiscal policy introduced by the government in 1995 following the exchange rate crisis is now bearing fruit," says Kren. "The mid and long-term economic projections for Hungary are very good, and with inflation dropping and consumption seemingly under control we should see further interest rate cuts following on from the two recent reductions."

At Deutsche Bank in Frankfurt, Gerhardt Krause agrees. "Budapest is one of the more developed bond markets in eastern and central Europe, and with inflation falling the prospects are more certain. Consequently the government is looking to issue more fixed interest instruments aimed at foreign investors. Yield prospects for the longer-dated instruments should, in dollar terms be some 5-7%," he said. Krause also agrees that despite the election, the fact that it is difficult to speculate against the forint means exchange rates are unlikely to suffer. Kevin Hall"

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