Weekly Market Update – 15.02.2019

Weekly Market Update – 15.02.2019

 

Turkey: After the US sanctions were lifted Turkish assets rallied

• In 2016 Turkey lost its investment grade rating. Due to the US sanctions (Lira Crisis) the country fell during 2018 into a recession and Moody’s has cut during 2018 the rating further from Ba1 to Ba3.
• The IMF forecasts for 2019 a slow recovery. This opinion is supported by the business sentiment indicators.
• At the beginning of November 2018 the US and Turkey agreed to lift sanctions. Immediately the Turkish Lira strengthened and both bonds and equities started a relief rally. Meanwhile, the growth outlook has worsened.
• Since the beginning of 2019 local currency corporate bonds were up around 8% in USD, while in USD dominated Turkish corporate bonds gained 5%.
• Last year the Turkish central bank lost its credibility while it hesitated to raise rates. At the moment it rebuilds some credibility. We expect that the central bank will only ease its monetary policy before the 2nd quarter, although Turkey is in a recession and producer and consumer prices are significantly decreasing. But the central bank has no option than to wait until market participants have regained more trust in their policy. Meanwhile, the benchmark rate stays unchanged at 24% since the last increase of 625 basis points in September 2018.

 

 

• Forward-looking we expect a slow economic recovery. The key question for Turkey is the same as for Europe and the rest of the world: Will there be soon an end of the economic slowdown or do even more countries fall into a recession?
• Turkey’s economy and asset prices faces many geopolitical risks: The remove of US troops from Syria, the purchase of a Russian air defense system, the different position in regard to Venezuela.
• On the other hand NATO countries have no interest to destabilize the Turkish government. For instance Germany and the Eurozone in particular need the help of Turkey to stop uncontrolled immigration from Africa to Europe.
• Assuming that there is no further escalation between the Turkish president and leaders from the western world we could see a continuation of positive bond returns.
• Nevertheless, we would use the actual situation to de-risk portfolios by selling some Turkish bank bonds. But we keep our holdings in international oriented corporate names such as Koc Holding,  Mersin Uluslararasi and Global Liman.
• We have reassess the bank bonds and would take either profit or cut losses of some of the weaker names like Halk Bankasi, Yapi or Is Bankasi.

 

 

 

 

Covered Bonds
Koc Holding 5,25 2023  (Koc Holding 2023 5.25)
Mersin 5.875 2020 (Mersin 2020 5.875)

 

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