Page 85 - TURKRptMay19

8.3.1 Equity market dynamics
As President Recep Tayyip Erdogan is showing signs of defiantly following his own agenda despite alarming fragilities besetting his country, the Turkish markets remain in a roller-coaster mood . “SELL all longs, except perhaps the best lira hedge, [Koza Altin]. And with that, your correspondent vanished in a puff of smoke like a pile of lira,” Julian Rimmer of Investec said on April 8 in an emailed note to investors. On April 1, Rimmer said in an emailed note to investors that he would be a buyer of Turkey for a trade if there were a 5-10% leg-down in the lira. On April 2, he had changed his mind as he offered short-term trade options in some Turkish equities. In his observations in a note to investors on April 2, Rimmer said: “The Turkish mkt made a decent fist of discounting the slapstick comedy/elaborate financial mousetrap laid by [Erdogan] in the swaps and currency markets. It dropped roughly 10% while the lira [rose] from 5.46 to 5.90 before stabilising at a still indecent 5.57 level [on the morning of April 2].
Lira enjoys “Get Out Of Gaol Free card”. “The worst-case will not materialise. The lira is being given a Get Out Of Gaol Free card by sagging US bond yields and now that the election is over (well, we think it's over) [E]rdogan has ratcheted down the 'rhetoric' (if you can call his spittle-flecked, fist-shaking vituperations that) and the domestic political drama should now detensify (a word of my coinage.) “There will be many still bearish on the lira, (Gentle Reader, I number myself among them) but the appetite to short the lira just now, even as swap rates fall to less stratospheric levels, is probably reduced by recent shenanigans and most importantly, the drive for locals to dollarise savings appears to be losing momentum... “Turkey's political risks now shift to the intl arena but even there [Erdogan] will most likely strike a less abrasive and more conciliatory note now there's no need for grandstanding. Regardless of the mayoralty disappointments, [E]rdogan still won >50% of the vote [nationwide] in partnership with the MHP [ultra-nationalists] which makes you wonder [what could make Erdogan’s people] shift allegiance?”. Rimmer suspected that the lira would still weaken from here but not materially in the near-term. “Slippage to the 5.70-5.80 channel has probably already been
85 TURKEY Country Report May 2019 www.intellinews.com