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as June data are available for both.
In Turkey, policies to support growth via credit expansion prevent imports from falling as fast as in other countries, but risk wide imbalances in the context of low reserves, it warned.
“$3bn turned over in the Turkish casino yesterday with anne ve baba [mom-and-pop] accounts accounting for most of it. I certainly haven't met any intl investors who want to be lulled into the speculative bubble currently inflating in Turkey,” Julian Rimmer of Investec wrote on July 14 in an emailed note to investors.
“Look, for example at EKGYO's [Emlak REIT] 1H numbers and home sales released today for 1H20. EKGYO performed 10 times better than they guided. When I met the CFO, Mr. Mustafa Buga, back in Feb he said they would do well and none of us present quite believed him,” Rimmer added.
“Home sales in Turkey were 190k in June with mortgage sales +1287% yoy. More than half of those home sales were attributable to mortgages... Although Turkish real-estate appears to be booming, there are pockets of weakness,” he also noted.
“The whole circus is being sustained by the govt and CBT [Turkish central bank] policies but the booming credit expansion, into the biggest recession in living memory, can only end one way. Who knows when?” he warned.
“The state banks are burning reserves to defend the lira and now have short fx positions in excess of 20% of equity which is illegal but the CBT seems remarkably comfortable with that. Meanwhile they fined seven brokerages for short-selling. Un grande spectacle de merde looming,” he concluded.
“If you were in EM, you had to invest/trade in Turkey, and you had to understand, or try to understand, the story. Most EM investors spent a lot of time visiting Turkey, talking and thinking about Turkey... I think [this] is changing a bit,” Tim Ash of Bluebay Asset Management wrote on July 14 in an emailed note to investors.
“As the Erdogan government tries to micro manage markets, it is becoming more difficult to trade and invest in Turkey – at least for foreign portfolio investors,” he added.
“Investors are still hanging back from investing in Turkey – indeed, they continue to reduce exposure to Turkish local markets. Therein the stock of foreigners now in the local debt market is [$7.1bn as of July 3, or at 10% of its $71.8bn peak in 2013], and debt and equity portfolio outflows have continued this year to the tune of over $11bn,” he also wrote.
“What is remarkable about the [outflows this year] also is that this has been in an environment of monetary policy easing which would normally entice hot money inflows from foreign bond investors – indeed in any other year over the past 20 years when policy rates would have collapsed by 1000bps plus I think Turkey might have expected $10bn-20bn in portfolio inflows,” Ash added.
The Turkish central bank's QE asset purchases since March have left it holding TRY89bn ($13bn) as of July 13 in domestic government papers, rocketing up from TRY20bn as of March 25, according to the central bank’s balance sheet.
Some TRY23bn of the bonds it holds are from the unemployment fund, Reuters noted on July 9 in a story entitled “Record stimulus tightens Turkey's grip on markets as foreigners flee”.
28 TURKEY Country Report August 2020 www.intellinews.com
