Daily Times

In the economy report on global growth expectations, the IMF pointed to the biggest slowdown in the world economy since the 2008-2009 global crisis. But today’s determinants in the economy are different day by day. Besides exchange rates and interest rates, epidemics such as coronavirus affects world trade more than even political conflicts. All of them shapes the economies of countries. They transform the markets of developing countries even faster. Turkey is the one of them.

There are serious asset sales in developing markets. How should we interpret the foreign interest in Turkey’s market? Borsa Istanbul provides custody and swap services to Turkish and foreign banks and intermediary institutions operating in the capital market. In the current stock market trend, every upward rise is crushed in the session. We cannot talk about foreign corporate investors’ demand for Borsa Istanbul, but we can talk about Borsa Istanbul’s main sector of 30 percent with an incredible foreign interest in the banking sector. In the sale of Yap? Kredi bank, 12 percent of the sale was made to the foreign institution with only 4 percent discount within 3.5 hours. Akbank was sold with the same discount.

While looking at the figures in such an environment, the banking sector, which started with a US agreement, earned 40 percent to its investors in dollar terms, in the last step of the rising trend, which continued for about 81 trading days. In other words, almost every day, the banking sector investor get a 0.5 dollar-based return. This continues as a moment trend. While the foreign institution has outflows from BIST ($571 million in January), we observe that the interest in the banking sector has increased and money has entered. This points to the momentum trend that we haven’t seen in a long time. There is money outflow from all main shares except the banking sector.

Someone sitting in his office in California should prefer to invest by looking to Turkey’s confidence index, economic processes and political stability

While the FED’s interest rate cut cycle is expected to cut 35 basis points in the next 12 months -that is when a world where the FED will decrease its effective interest rate from 1.59 to 1.30-it was started to be said that the US economy would grow 2.5 percent rather than 2 percent. Especially the latest macro data, second-hand house sales, consumer spending, all data is good. We see that we are now joining the world leading US stocks, the global stock rally (Turkey’s 2-year bond yields 10.30 percent of Turkey’s 10-year bond yields 10.51 percent).

Our biggest problem, according to the rising train in the banking sector, there are money outflows in the last 8 months. (US 2-year bond yield is 1.4334 percent, US 10-year bond yield is 1.6265 percent.) The foreign enterprise sees this uptrend as an opportunity to exit. And indeed, unless there is significant improvement in the CDF, foreign institutional accepts Turkey as risky. We regressed from 420s to 240s. They see this risk only in the banking sector where he earns very serious money.

There is a stabilised environment in the exchange rate. If this remains, can differentiation be expected in the coming period? In the framework of dollarisation, the wait-and-see action continues in the foreign exchange investor. Especially if we look at real people, it seems that there is not much selling appetite. While interpreting to exchange rate and investor behaviour, there is no significant improvement in dollar/TL expectations and dollarisation level. While talking to 4 percent growth in 2020 in Turkey, 8-8.5 percent inflation rate, we also need to see an improvement in the level of dollarisation. However, after the currency crisis of 37 billion dollars, we see that households do not sell the dollar/TL they received from the average of 5.59 and this dollarisation level does not decrease. The main reason for that is that the current TL/Deposit rates fall to 0.64 in net income on a monthly basis. It is unrealistic to expect an improvement in the dollarisation level as the TL/deposit rates remain here.

The dollar rose from 5,9667 to 6.04. Household expenditure is rising. Certainly, no one can exchange their dollars and spend. Domestic settled foreign currency deposits decreased by $1.8 billion on January 31. While some of the investors who could not find what they wanted from the deposit remained in dollars, some of them turned to the stock market. The banking sector came into prominence as an indicator in the stock market. There is a Borsa ?stanbul 100 index that tries to hold on in the 122s. As if he made the expected correction.

There are serious asset sales in developing markets. How should we interpret the foreign interest in Turkey’s market?

A new record has been seen in American indices for a week in the past few weeks. Especially after making corrections in BIST 100, our correlation with abroad has increased a little more. BIST 100 did not react to the negative news flow such as Korena etc. Our geopolitical risks affect us.

America-Iran tension, the coronavirus problem. Everyone is trying to catch an antibody to the virus. When we look at it from the world, we observe that the virus issue creates a very serious pressure. As of now, the market is getting a little bit more familiar with Korean news, but refiners in China are predicting that their total oil production in China might be down 25 percent. It already has a consumption of around 14 million in oil. If we discuss what might happen next, China is the world’s largest commodity consumer. How long does this slowdown continue? Pricing news in China is not very easy. The flow of abundant liquidity in the world seems to be towards the USA. FED supports the balance sheet by expanding it.

Even the decrease in arrivals to China affects world oil prices. 50 thousand flights cancelled. Has the 2020 theme changed? There will be a bottom return signal in economies. Since Phase 1 has been completed in the trade agreement, economic growth will start in China as well as in Europe. The USA is already growing around 2 percent. The support that could come during the election indicated that it would be a positive year. China will buy American products from America and reduce some taxes it imposes on China in America. But it is hard for Trump to do this during the election period. With the news, the corona became less likely. It is only possible for the USA to reduce customs taxes in the second phase trade agreement.

Even though we could not get a share in the developing markets, there was a fund inflow to Mexico. Last year, there was a flow of funds to China. The Chinese market was pretty good. There are asset sales. The Brazilian development bank has $5 billion in sales. Public interest will decrease, and privatisation will begin. Such a global conjuncture has been caught, as long as the negative interest rates continue, especially as long as the fragility continues in the world, the money will be more in the hands of the public. Where are the negative interest rates now?

Most of them are in the USA. They are also in pension funds, insurance companies etc in Europe. Not Russia or Africa. It is not a market where institutional investors can easily write checks in Africa. You cannot enter North Africa due to war anyway. The non-Brazilian part of Latin America is not very credible. In Asia, China may no longer be around Indonesia. Turkey lags behind. Ready money can flow to Turkey now more than ever. Turkey has a new economic model approach. Foreign capital flows, especially hot money, are approaching more distantly in the source coming from the capital account. It also does not prefer to enter. But also as seen in the Table, in order to be integrated into world economies, Turkey decreased interest rates month by month.

There has been a decrease in global growth rates in all economies. Likewise, the Fed’s interest rate cut decision was observed at the lowest level in 2008. With the interest rates in the 0 to 0.25 intermediate band, the aim was to accelerate the economy and increase investments. On the other hand, it is a macro move where the FED is not to increase the interest rates. Because global markets that are connected to each other will affect all developing countries at the same time with this move of the USA, which is accepted as the most developed country in the world. It will have direct joint results at developing country levels. The interest rate hike will cause the dollar to rise and other currencies, the euro, to lose value against the dollar, and thus to drop the euro/dollar parity. Turkish Lira will also lose value. Just like a leverage effect, the rise of the dollar will have a downward effect on all other currency values and affect developing countries.

There are saving gaps in Turkey. When growth takes place, there will be a need for savings. For instance, someone sitting in his office in California should prefer to invest by looking to Turkey’s confidence index, economic processes and political stability. But it’s not beyond our power, it’s a little bit and mostly about events happening around the world. The money given by the European Central Bank enters the balance sheets in cash. These cash valuations inflate. When we look at the rational profit, they cannot catch profit per share. They cannot write in financial profit because there is no interest. Amazon shares are sold and are in demand; these shares continue to go up.

The return of America’s bonds is 2 percent more than the return of Europe’s bonds. It was the cheap borrowing and cheap lending that created the 2007 2008 crisis in the balance sheets of Europe. We are experiencing this right now. The global economic conjuncture we are in is extremely sensitive and fragile. Sustainability of economies that had previously been in a difficult situation is increasing. For example, exchange rate shocks were experienced in the August 2018 crisis in Turkey. The problematic receivables of the banks have increased significantly. It reached incredible points in the first quarter of 2019. The interest rate hike will cause the dollar to rise and other currencies like euro to lose value against the dollar, and thus to drop the euro/dollar parity. Turkish Lira will also lose value. Just like a leverage effect, the rise of the dollar will have a downward effect on all other currency values and affect developing countries. There is now a complicated economic situation in Turkey.

Volatility is much more when we consider the current situation. In fact, when we consider the situation of emerging markets, there is much more volatility. We are also considering the trade war for the USA as an effect of that. Effective for all countries. Turkey stayed in a very unfavourable situation due to its geopolitical location. Russia remained between the Middle East and the USA.

On the one hand, it was a bit encouraging for the Central Bank to cut interest rates. I think what to do is this: Swap interest and market interest. However, there are political shocks. One of the things that needed to be done to prevent the stocking of the dollar was the interest rate cut. When we think in the long term, we are still talking about dollarisation. For this, we must follow the framework in the outside world for the rest of the year.

The writer is an Economics Research Assistant at Do?u? University and a PhD scholar in Economics at Istanbul University