By Tim Ash, Standard Bank
It has been easy in recent weeks to get carried away with big emerging market (EM) currency movements. A range of them – including the Russian rouble, Turkish lira, Polish zloty, South African rand and Brazilian real – have hit their lowest point this year against the US dollar.
But this is mostly about the dollar’s recovery, the broader US recovery and assumptions that the US Federal Reserve is way ahead of the European Central Bank (ECB) in terms of policy normalisation. Indeed, the ECB seems still to be going the other way, loosening monetary policy; the euro also appears to be on a hiding to nothing.
So who will be the winners and losers from the dollar’s recent ascent?
Perhaps only President Recep Tayyip Erdogan of Turkey would exclaim “I am increasingly against the internet every day” in the middle of a private meeting on press freedom.
That indeed is what the outspoken Turkish leader just did, according to the Committee to Protect Journalists (CPI), which met Erdogan in Ankara this week, together with the International Press Institute (IPI). Read more
Turkey is in an uncomfortable place. Amid a general turn away from emerging markets, fuelled by the rise of the dollar and expectations of US rate rises, the Turkish economy is, if not in investors’ crosshairs, close to the centre of concerns.
The lira is skirting seven month lows, undermined by worries about the country’s fundamentals (notably its high current account deficit), its geopolitical position (bordering Iraq and Syria, not to mention the jihadis of Isis) and more besides.
That makes the difference between what appear to be two schools of thought within the Turkish government particularly important. Read more
Poor forward planning and political manipulation of energy prices look likely to leave Turkey facing gas shortages this winter, even before the prospect of regional gas cuts due to the on-going hostilities in Ukraine.
Turkey last week experienced an unexplained drop in pressure in its western import line, through which it receives 14bn cubic metres (bcm) of gas from Russia, or about 30 per cent of Turkish demand. That sparked fears of further cuts during the peak mid winter demand period should a working ceasefire not be concluded.
But Turkey’s gas woes are not confined to one import line through Ukraine. Read more
One of the biggest questions facing Turkey is not so much who is going to win Sunday’s inaugural presidential election – prime minister Recep Tayyip Erdogan is heavily favoured – but what kind of government the country will have afterwards.
If Erdogan does head to the presidential palace later this month, so vacating the premiership, a new government will have to take office-even though he has made clear his ambition to keep running the country. Read more
Here’s an example of what may pass for high finance Turkish style: talk down an asset and then try and nab it for yourself.
This may not be a path that is permitted for non-governmental actors, but then sometimes it seems that all roads lead back to the country’s government, notably its powerful prime minister Recep Tayyip Erdogan.
Last week, he was quoted as lashing out at an Islamic bank in Turkey named Bank Asya. Read more
Turkey should adopt a “sufficiently restrictive” monetary policy to dampen inflation and balance growth or remain at the mercy of uncertain capital flows, the Organisation for Economic Co-operation and Development (OECD) recommended in a report on Thursday.
The report tells a familiar story: Turkey’s dramatic growth in the 2000s was mainly driven by domestic demand and has led to a large current account deficit and external debt. This leaves the economy vulnerable to turmoil in global financial markets as was seen in 2013 and earlier this year.
But the tightening is unlikely to come soon. Last month Turkey’s central bank opted to cut rates by 75 basis points to 8.75 despite inflation being almost twice the bank’s 5 per cent target.
Hopes for an early release of disputed oil pumped from Kurdistan – but held in Turkey – are rising, a person familiar with the issue said. A resolution to a political impasse between the semi-autonomous Kurdistan region and Iraq could free up for sale millions of barrels of oil that have been stockpiled on the Eastern Mediterranean coast since the end of last year.
Oil has been flowing from Kurdistan – sometimes described as ‘the last great oil frontier’ with a potential 50bn barrels in reserves – through a newly-constructed pipeline to the Turkish export terminal of Ceyhan for more than five months. Read more
By Anthony Skinner of Maplecroft
Even before the disaster of Tuesday’s explosion at a mine in western Turkey, questions were being raised about the future of prime minister Recep Tayyip Erdogan. It is yet another example of the volatility that seems to be perpetual in the country.
In recent months, the lira has gone from being one of the worst performing currencies in the world to one of the best. Many investors were reassured by the victory at March’s municipal elections of Erdogan’s centre-right Justice and Development Party (AKP), in the midst of a battle for influence and power with the moderate Islamist Gulen movement. Read more
Turkey has a penchant for plastic. Over the past decade, consumers have gorged themselves on credit cards marketed aggressively by banks. The country now has more than 57m credit cards, up from fewer than 16m in 2002, in a population of 76m people. That expansion helped push the ratio of household debt to disposable income from 4.3 per cent in 2002 to 55 per cent by the end of last year.
Such indebtedness is causing misery: more than 1m people were unable to pay off personal loans or credit cards last year, nearly half as many again as in 2012. Read more
By David O’Byrne of bne in Istanbul
Turkish football is no stranger to empty stadia, with the football authorities regularly ordering matches to be played behind closed doors as punishment for the misbehaviour of fans and players alike. But the April 20 derby match between fierce Istanbul rivals Fenerbahce and Besiktas was different. Read more
The “fragile five” – Brazil, India, Indonesia, Turkey and South Africa – have had a torrid time since Morgan Stanley identified them last year as countries particularly vulnerable to the “tapering” of US monetary stimulus because of their large and rising current account deficits. Read more
Food and beverage vendors and technology firms are most vulnerable among those Turkish companies with hard currency debts to the lira’s sharp depreciation, according to a survey of 10 corporations by Fitch, the credit rating agency.
Assuming a 30 per cent depreciation in the lira against a basket of currencies since the end of 2012, Fitch examines which companies have the highest proportion of their earnings in lira versus debts in hard currency – a transgression known as “original sin”.
Turkey’s banks are having a bad time. The sector’s 16-bank MSCI index fell by as much as 15 per cent during the past month, hitting a price-to-book ratio of less than 1 for the first time in five years.
Perhaps that isn’t surprising given that higher interest rates, slower growth and a cheaper lira are likely to persist, while credit expansion won’t sustain its rapid pace of the past decade. In 2013 alone the volume of loans rose by just shy of 30 per cent and the ratio of banks’ loans to deposits currently stands at 107.7 per cent, after breaching the 100 per cent level in 2013 for the first time in at least a decade.
So, how well prepared is the financial system for the end of a world of easy money and abundant capital inflows?
If market consensus is correct, Turkey’s central bank will raise interest rates on Tuesday evening. It’s an issue that has gripped investors, partly because of the opacity of Turkish monetary policy over the past central years. But putting the mechanics to one side, what would be the impact of tighter monetary conditions on Turkey’s economy?
Beyondbrics has taken a look. Read more