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them based on macro evaluations.
The Institute of International Finance (IIF), a finance industry body, observed on January 16 in a research note entitled “Too frothy?”: “Rising tide lifts all boats: With U.S. stocks reaching record highs as Washington and Beijing ink a new phase one trade deal, soaring valuations are once again under scrutiny. While loose global financial conditions remain broadly supportive for share prices, liquidity is still the principal driver, given the broadly subdued corporate earnings outlook. This has fed into concerns that valuations are becoming increasingly stretched.
“Equity prices relative to forward earnings are well above their long-term averages in many cases, including the U.S., Euro Area and parts of Asia including India and Thailand. In contrast, equity valuations in Japan and much of EM ex-Asia are still below historical averages, despite rising in 2019.”
The IIF added: “Debt volcano: With global debt nearing $253 trillion in Q3 2019 and a new high debt-to-GDP ratio of 322%, we estimate that total global debt will top $257 trillion in Q1 2020 as low global rates and loose financial conditions persist... While many of the associated risks are long-term in nature, debt maturity profiles highlight rollover risk this year: we estimate that more than $19 trillion of debt needs to be refinanced through 2020 across key EM and G4 countries (Chart 3). Maturing shortterm debt securities constitute over 40% of that, and the U.S. alone will face over $7.4 trillion in refinancing costs.
“Across emerging markets, bond, bills and syndicated loans coming due this year stand at around $5.4 trillion, with China accounting for $3.2 trillion of that. In 2020, EM foreign currency redemptions will likely exceed $820bn, of which over 80% is denominated in USD.”
Closed market . However, it’s not possible to entirely explain the Borsa Istanbul rally by simply taking account of the latest money printing fest contrived by the Trump administration because the Turkish equity market is de facto a closed market right now under the heavy control and scrutiny of a government that politically and economically is walking a fine line. It is not attracting substantial foreign interest.
Global financial players and commentators still seriously see the Turkish capital markets as “free market”.
Albayrak made another intervention betraying the reality of the situation on January 20 when he criticised private banks for taking a profit-oriented approach to their banking . Private lenders should support the real sector just like state banks do and keep up with the changing environment, he said. His words came a few days after a competition probe was launched against 20 local lenders (see below).
Local analysts see the fuel of the latest stocks rally in purchases of pension and other government-controlled funds, such as the unemployment fund, and also in some individual investors running away from deposit rates that stand even below official inflation (we’ve written about the difference between that and unofficial inflation ad nauseam).
There is also talk of there being no real foreign interest in the rally, with uplift coming from local individuals buying small caps.
The volume of inflows that can be attributed to local individuals is questionable, but there is one certainty—none of them believe in the official macro outlook. The other suspect in the rally, government-controlled local funds, invest on order.
52 TURKEY Country Report OUTLOOK 2020 www.intellinews.com