BUDAPEST/WARSAW: Central European assets mostly firmed on Wednesday, rebounding after a plunge the previous day prompted by concerns over the outcome of Britain's June 23 referendum on whether to stay in the European Union or leave.
Equities were helped by MSCI's overnight decision not to add Chinese shares to its emerging market indices, a move that could have led to the selling of equities elsewhere to make way for Chinese names, analysts said.
But regional markets are likely to remain on a roller-coaster in the coming days amid concerns about slower economic growth if British voters decide to quit the EU, a scenario known as "Brexit".
The zloty and the forint rebounded from three-week lows against the euro, firming 0.4 and 0.3 percent, respectively, by 1259 GMT.
But implied volatilities on the zloty stayed near Tuesday's four-year high and near 8-1/2-month highs on the forint, indicating expectations for further swings.
The crown touched its weakest levels against the euro since October, even though trading at 27.072 it remains near the Czech central bank's cap at levels next to 27.
"This seems to be all about Brexit and players on the market found the crown again," one player said, adding that euro selling interest would prevent a further weakening.
The leu also underperformed, trading near Tuesday's 4-1/2-month lows against the euro, due to worries triggered by the Romanian upper house of parliament's vote to cut social security contributions in 2017.
The vote adds to worries over the budget and domestic demand, fuelled by tax cuts and wage hikes ahead of Romania's parliamentary elections late this year. The lower house has yet to vote on the issue.
The 2017 budget deficit may swell to 5 percent of economic output if the measure is passed, analysts at ING's Romanian unit said in a note.
"While we would still expect economic logic to prevail and talk of easing to be scaled down, we underscore that implementing such decisions would be materially negative for RON assets and Romania's macro fundamentals over the medium term," they added.
Worries about fiscal loosening and a growing burden on banks have also kept Polish assets under pressure since last year, boosting the risk of credit rating downgrades.
Poland's 10-year bond yield dropped 4 basis points to 3.26 percent after testing January highs, while Hungary's corresponding yield rose 4 basis points to 3.38 percent.
Budapest's main equities index led gains in the region, firming 1.7 percent, after hitting 3-month lows on Tuesday.
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