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August 3, 2018 www.intellinews.com I Page 4
low as 88,169 on July 12 during the turbulence that came after the cabinet reshuffle announced by the new executive presidency on July 9. Some analysts now see Turkish stocks as cheap but volatile.
Lurching market
“The market lurches from one negative event to another,” Nigel Rendell of Medley Global Advisors told Bloomberg. “The net result being the erosion of foreign appetite for Turkish assets and an ever weaker lira.”
“The sanctions imposed by the US on two Turk- ish government ministers in themselves aren’t very big, but it looks likely that more measures will be announced. The lira is likely to fall further, strengthening the case for interest rate hikes. And given the context of Turkey’s large current account deficit and dependence on foreign capital inflows, there is a real risk of more severe macro stress,” Jason Tuvey of Capital Economics said in a research note.
Timothy Ash, at BlueBay Asset Management, not- ed that US Vice President Mike Pence described the sanctions as “harsh economic sanctions”, a remark which was “interesting as from the eco- nomics perspective they are not really, as neither minister is thought to have significant overseas assets.”
He added: “Importantly there were no sanctions on Turkish entities — no sanctions on Turkish borrowings as per Russian sanctions. This might reflect an understanding in the US Treasury just how fragile the Turkish economy is at present — push much harder and the outcome on the econ- omy front could be extreme, with not much going back then in terms of Turkey-US relations.”
Ash said it was “absolutely remarkable” that the Trump administration had decided to sanction a
Nato ally. “It will inevitably push Turkey towards the Russian and Iranian orbit and I think even raises questions over Turkey’s Nato membership. I think Turkey thought Nato membership gave it leverage but I think where it miscalculated is it failed to un- derstand that [Donald] Trump sets a very low store on Nato so hardly appreciates Turkey’s member- ship therein.” Further escalation that saw a trading of sanctions might see Turkey close the Incirlik airbase and then limit cooperation with the US in Syria and Iraq and in terms of Washington’s sanc- tions campaign against Iran, Ash added.
Inflation battering ahead
On August 3, Turkish markets are expected to take their regular battering from the statistical institute’s (TUIK’s) inflation figures report. The market consen- sus is that Turkey’s annual inflation, standing at a 15-year high, has at least a bit further to rise.
Turkey’s annual consumer price inflation jumped from 12.15% in May to 15.39% in June, the TUIK announced on July 3.
A BloombergHT poll of 17 financial institutions predicted that inflation would quicken to 16.3% in July.
Meanwhile, expectations that the local elections will be brought forward to November this year from March 2019 are mounting. Turkey’s eco- nomic problems are expected to become more starting from October after the fruitful tourism season of this year ends and the US’ sanctions on Iran’s energy exports, scheduled to snap back on November 4, come into effect.
Early local polls would delay desired fiscal tighten- ing but, at the same time, would provide markets with new hope given that there would be an expec- tation that orthodox economic policies would follow after the elections were over and done with.