Page 44 - TURKRptJun19

currency crisis last August. Within a month of the catastrophe, Turkish banks re-entered the syndicated loans market, refinancing billions of dollars of outstanding debt with such lenders. Although borrowers, including Turkey’s largest bank, public lender Ziraat Bank, received margins that were 25bp wider, all the major bank loans were oversubscribed, demonstrating continued strong international demand for Turkish debt.
Despite new waves of turbulence now hitting Turkey, the Turkish lenders’ spring loan refinancing season that takes in April and May is progressing undeterred. High levels of demand for Turkish bank loans in the secondary trading market are testament to the resilience of the banking system, despite the monetary and economic crisis playing out in Turkey. “Secondary trading in such issues initially stopped altogether, but after a few weeks it restarted. Trading of Turkish assets is one of the busiest sectors in the secondary trading market,” Smith added.
“Daily figures on foreigners’ purchases of EM stocks and bonds, published by a handful of countries, suggest that inflows weakened in late April. That coincided with fresh currency strains in Turkey and Argentina (and a modest weakening of most other EM currencies),” William Jackson of Capital Economics said on May 8 in the economic research company’s Emerging Markets Capital Flows Monitor for April.
“Why such a big thing?” “Kind of interesting that pro [ruling party] AKP types are defending the decision to re-run Istanbul elections by asking the question why markets are making such a big thing of this—as plenty of investors invest in many authoritarian regimes—from Saudi Arabia to Egypt, and to Russia, China et al. They suggest that the coverage is hardly fair, and that some kind of foreign plot has been hatched to take the AKP down through the economy— and financial market participants are somehow involved. They are right in so far as while we all try and deploy ESG [Environmental, Social and Governance] criteria now in investment decisions, the reality is that many regimes which are far from democracies still present strong investment themes/cases. And as long as investment in these economies is not sanctioned, or illegal, or ethically beyond the pale, then investors are still willing to put money to work,” Timothy Ash of BlueBay Asset Management said on May 7 in a note to investors. A critic assessing the AKP figures Ash is talking about might observe that they hardly have a crumb of any kind of ethical or humanistic value. They are only interested in the cash on offer. But the world turns another 360 degrees and the credit and investment stories must move on. Ash elaborates on the “ethical” standards of investors: “But what is making it increasingly difficult to invest in Turkey—as opposed to the likes of Saudi, Egypt, Russia, China, etc—is the fact that in terms of macro economic policy at least, all the four latter countries operate pretty orthodox policy. Importantly, while you may have issues with the policy of these countries in other areas (democracy, human rights, social policy), their leadership tend to hire top quality technocrats to run macro policy, and then delegate. “From macro policy these other economies are meritocracies—Putin hires the best staff for the CBR [Central Bank of Russia] and the MOF [Ministry of Finance], and technocrats are generally given the freedom to run policy. Putin listens to their best advice, and nine times out of ten goes with their advice. I am afraid in Turkey these days, loyalty to the regime comes first, over technical qualifications for the job. And whoever is hired into key positions, it’s the willingness to toe the party line, rather than pursue the correct policy choice which is the dominant factor. This means that confidence/policy credibility is at a really low point/ebb in Turkey at this point in time, and that Turkey scores badly still via much more authoritarian regimes.”
Wanted: bold hike, bold devaluation. Analysts who backed the Erdogan regime’s efforts to pull the country out of its financial funk even as late as March before the outbreak of the latest lira and other intractable woes need a bold rate hike following a bold currency devaluation to restore their factory settings, while equity investors also await the indispensable devaluation to jump into well-established Borsa Istanbul companies currently trading very
44 TURKEY Country Report June 2019 www.intellinews.com