Page 31 - bne_April 2021_20210401

bne April 2021 Cover story I 31
Investors run for the hills
Investors will no longer believe a word of what the Erdogan administration
and central bank have to say on where Turkey is going economically. Many are angry at being burned yet again by the capricious president. Agbal had begun to build up some momentum that was drawing in increasingly large amounts of capital. But certainly in terms of Western
its and in effect throttled the money markets in an effort to limit the haem- orrhaging of hot money trying to leave the market. Uncertainty has frozen the money markets anyway as bankers cut off credits to other banks in case they start going bust.
When markets opened on March 22, local Turkish banks made it hard for
account deficit,” one investor told bne IntelliNews in frustration.
Things have got so bad that analysts have frankly given up on trying to forecast where the lira is going. Previ- ously bullish on the outlook for the lira in the week before Erdogan’s decision, by March 22 they simply tore up their outlooks in despair.
“People are simply picking a big number at random and waiting for it to become true, before they pick a new bigger number,” Timothy Ash, senior sovereign strategist at London-based BlueBay Asset Management, said in a note to clients in the last week of March.
Investors and international financial institutions (IFIs) must be pulling their hair out in frustration. In the weeks before Agbal's sacking, the International Monetary Fund (IMF) and rating agen- cies were upgrading their forecasts to predict 6-7% growth in Turkey in 2021, but now Kavcioglu might even find him- self presiding over a recession.
Following the fall of everything, there are of course some investors who are asking if it's time to get back into the Turkish market when everything is dirt cheap. Ash argues that the leopard has not changed its spots and is unlikely to ever change them.
“The IMF, Fitch et al in recent weeks have been revising up Turkish real GDP growth forecasts for this year, to
“Investors will no longer believe a word of what the Erdogan administration and central bank have to say on where Turkey is going economically”
investors, it looks like it may have been Turkey's last hurrah, certainly in the Erdogan era.
Central bank data shows that around $16bn entered Turkey to chase juicy lira interest rates through currency swaps between Agbal’s appointment on Novem- ber 7 and the day of his firing, March 19, Bloomberg reports.
Another $4bn entered the country to buy lira government bonds, while net flows to equities were about $700m in that period, having peaked at about $1.8bn in February. Additional flows to sover- eign bonds denominated in foreign cur- rency, corporate bonds and loans added another $4bn, according to the Institute of International Finance (IIF).
By March 25, Turkish lira swap rates
in London jumped once more to more than 1,000% after falling to 50% the day before and testing records on March 23, when they soared into the 9,000- 10,000% bracket.
Domestic government bond yields remained high at 18-20% across the curve.
The Borsa Istanbul, meanwhile, extend- ed its up-tick rule on short sales into a third day.
To make things worse, the government has introduced restrictions on cred-
foreign investors to get out of their posi- tions in currency swaps. To exit a swap contract before it expires they need to borrow lira, but the rates they were offering on lira loans rose by 1,400% by March 23 in the face of an explosion of demand.
“What we are seeing now is backdoor capital controls,” a former Turkish offi- cial said, as cited by the Financial Times.
Investors said the situation would mean lasting damage to investors’ trust.
“It’s really a feeling of exasperation,” said Yerlan Syzdykov, the London-based global head of emerging markets at Amundi, Europe’s largest asset man-
“Agbal’s sacking tells you that there are no rules. This is not how you treat people who finance your current account deficit”
ager, as cited by the FT. “We were just getting to the point where Turkey was rebuilding credibility.”
No visibility, no credibility
“Agbal’s sacking tells you that there are no rules. This is not how you treat people who finance your current
6-7%. That was under Agbal,” says Ash. “Why would Erdogan fire Agbal who seemingly was going to deliver 6-7% real GDP growth, to then hire Kavcioglu to deliver recession? I may well be an idiot, some of you might think that,
but surely if growth begins to lag, Kavcioglu will deliver early rate
www.bne.eu