Page 14 - TURKRptSep20

The lira is the third-worst performer in emerging markets to date this year with a loss of around 19% against the dollar. Its three-month implied volatility is the world’s second highest after Brazil’s real.
2.3​ ​Citigroup, Fidelity among investors ‘considering Turkey separately from its asset class as economic metrics decouple from other EMs’
A raft of negative metrics show Turkey is increasingly decoupling from other emerging markets, Bloomberg ​said​ on August 17.
“The country has expanded its money supply and spent its foreign-exchange reserves faster than any other major developing economy. None of its major peers have a central-bank policy rate that’s so far below inflation,” the news service said in an analysis.
“The fact that these measures stand out, and that the lira’s slide appears largely homegrown, is prompting investors such as Citigroup Inc. and Fidelity International Ltd. to consider the nation separately from the rest of the asset class,” it added.
Citigroup analysts Luis Costa, Dumitru Vicol and Sara Felizardo said: “Turkey macro is now diverging significantly from emerging market majors in two major fronts: inflation profile and current account balance. We expect Turkey’s GDP growth to rebound by 4.5% year on year next year, but current and fiscal accounts are unlikely to improve significantly.”
An approximated assessment of the M1 narrow money growth for 25 emerging markets shows that most Asian and east European governments have contained the increase to single digits this year, with the median at 10.63%, but Turkey is reportedly expanding at almost seven times that rate, with Argentina coming a distant second.
Turkey’s gross currency reserves, meanwhile, have fallen at a much faster pace than the few peers that have also seen a reduction because state-run banks have been intervening in the market to support the lira. Most EMs have preserved or expanded their cash piles even as the trade slump undermines export revenue, Bloomberg observed.
Turkey’s central bank has boosted funding costs in an effort to support the lira without raising its key interest rate, but when the policy rate is compared with inflation, the nation’s real yield is the lowest among 23 major emerging markets, the news service reiterated. The central bank is forecast to keep the one-week repo rate unchanged at 8.25% on August 20 as it instead resorts to more backdoor tightening to try and put a brake on the descent of the lira.
The lira stumbled to another all-time weak rate against the dollar on August 17, falling to 7.3983.
Paul Greer, a London-based money manager at Fidelity International was quoted as saying: “We have concerns around the very weak net foreign-exchange reserves position, elevated loan and credit growth in the country and overly loose monetary policy resulting in unattractive real yields. This has resulted in some concerning current-account balance and inflation trends in Turkey. This is particularly noticeable as balance of payments and price pressure dynamics in most other emerging-market countries have been quite benign this year.”
14​ TURKEY Country Report​ September 2020 ​ ​www.intellinews.com