Page 88 - TURKRptMay19

high and constant level, the forecasts have been gradually revised downwards due to the worsening economic problems. “Turkey also shows persistent weaknesses in terms of debt, with corporate debt, which has been rising for years, playing a particularly significant role. In particular, the high level of foreign debt of Turkish companies and the associated sensitivity to currency fluctuations are becoming increasingly problematic for the Turkish economy,” Raiffeisen said. Although the ongoing structural economic problems coupled with political risks currently offer little support for sustainable equity performance, Raiffeisen also sees positive factors. The BIST 100 for 2019e now has an impressive dividend yield of 4.9%, which makes it interesting from a valuation point of view. Although the difference between dividend and bond yields has improved noticeably in recent months, due to the massive upward surge in government bond yields in 2018, it remains low in the negative range. On the basis of several multiples, the BIST-100 is also trading well below the average of the last 10 years. The market is thus valued at a significant discount to established stock markets and other emerging markets, the bank added. “Although a discount is appropriate due to the structural problems, it is currently too high from our point of view. In this respect, Raiffeisen believes that the Turkish equity market is well supported from a valuation perspective,” it also noted. In a strategy report for April, Seker said: “TRY-based assets decoupled negatively from their peers in March, amid domestic market turbulence... the BIST partly covered its losses with reactionary buybacks towards the end of the month... The Fed’s tone was read as quite dovish [at the latest rate-setting meeting held in March]; its impact on the EMs, however, remained rather limited, even turning negative later, due to the downward revision of growth expectations on global growth concerns. Investors will primarily be following US-China trade talks in April, which have so far been continuing progressively. “Meanwhile, the main theme in the markets will continue to be global growth. Hence, growth related macroeconomic data from major economies like China, US and the EU will bear utmost importance; the markets’ sensitivity to weak data in this regard is expected to be high. While weaker-than-expected data from major economies may trigger sell-offs in the financial markets, positive and better-than-expected data could be expected to reflect somewhat positively. “In short, global risk appetite may remain rather weak over the coming weeks. Global risk appetite is expected to strengthen should the US and China reach a trade deal; this would also be supported by the Fed’s dovish stance, if maintained. Although the Fed has strengthened its dovish tone, the EMs had decoupled negatively, and they may continue to do so in April as well.” “Should relations with the US turn negative, volatility in TRY-based assets may continue, and they may continue to decouple negatively from their peers. However, should they develop positively, one would expect the TRY to stabilize and the BIST and other TRY-based assets to recover their recent losses. The strengthening of the global risk appetite and the Fed’s maintenance of its dovish stance would also support such a recovery at the BIST. However, the BIST, along with other TRY based assets is likely to remain volatile in the month of April.” The Istanbul-based brokerage house maintained the weight of bonds in its portfolio at 60%, FX at 20% and equities at 20%. “For the January-February period, we witnessed around a 59% YoY decline in auto sales (-53% YoY in 4Q18) and 35% YoY decline in consumption goods imports (-44% in 4Q18), which indicates that private consumption will most likely continue to take its toll on 1Q19 GDP growth. Manufacturing sector PMI also remains in contractionary territory... “On the other hand, credit momentum, as identified by the 13-week average annualized credit growth, turned positive recently, although this is most likely related to firms’ working-capital needs, instead of supportive domestic demand. All in all, while we have as yet little data with which to shape 1Q19 GDP growth expectations, we initially think we might witness a similar GDP contraction in 1Q19 [as was the case in 4Q18],” the equities house also said on April 2 in its macro outlook. “With the ongoing weakness in economic activity (as suggested by sectoral [confidence] indices), the seasonally adjusted unemployment rate is likely to rise further for a few months more (above 13.0%), with some potential contribution from the industrial sector, too,”
88 TURKEY Country Report May 2019 www.intellinews.com