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investor share in the free float of Turkish equities has increased from 64% to 65.2%, which is near the top of the 61-66% band that has prevailed for the past eight years.
“Marginal loan-deposit spread retreated from Buy signal”. The weekly front loan-deposit spread (in Turkish lira) of the banking sector has dropped again from 7% to 5% levels, which also supports VTB’s trading call for profit taking.
“Two major risk factors improved recently, but are not completely off the table”. “The end of the election saga and improved sentiment on the S-400 dispute, fuelled the rally in the market. Domestic political risks improved significantly, but cannot be ignored completely, with regards to the possibility of a new political party establishment by [the ex Finance Minister Ali Babacan also supported by the ex-President Abdullah Gul]. Also, despite the positive sentiment after the Trump-Erdogan meeting at the G20, there is still ambiguity with regards to S-400, and the 31 July deadline of the US for Turkey to cancel its S-400 purchase is nearing, so the risk of potential US sanctions is not completely off the table,” Tuzun also said. “There is a possibility that [the new party by Babacan/Gul] may attract some MPs from AKP and potentially take total MPs of AKPMHP alliance below 300 in the Parliament. Even though none of the parties (both ruling and opposition) want early elections, a potential change in MP dynamics might add some political risk premium to the market, though not in the near term,” he added.
Bank picks. Based on both VTB’s and the market’s (per Bloomberg data) future ROE forecasts, state-run lenders Vakifbank and Halkbank continue to trade at deep discounts to private banks. Vakifbank trades at the same discounts that Halkbank trades at, despite Halkbank’s company-specific risks; thus Vakifbank’s risk-reward profile looks better, according to Tuzun. “State banks have underperformed YTD in 2019, mostly amid their aggressive lending policy during 1Q19, which seemed to be politically influenced and irrational from the market’s point of view,” Tuzun added.
8.3.2 Dividend dynamics
57 TURKEY Country Report July 2019 www.intellinews.com