BIST rally expected to accelerate if Turkey exits FATF grey list

Turkey’s removal from the FATF grey list and the reopening of swap channels for foreign investors have been widely voiced. If these expectations are realised, this may allow for a more relaxing outlook.

According to Hurriyet market commentator and columnist Zeynel Balcı, Turkey’s removal from the FATF Grey List at the June meeting and new rating upgrades may start the second leg of the rally in bonds and stocks.  However, high and sticky inflation poses a serious risk.

The highlights of Zeynel Balcı’s article are as follows:

Last week, foreign investors bought USD 2,832 million worth of bonds and USD 84.7 million worth of equities on a weekly basis. Due to the high interest rates, especially the purchases in bonds and bills on a weekly basis were the highest since 2013. Bond purchases in the last three weeks were 4.2 billion dollars. In the last two weeks, the amount of purchases in stocks reached $ 393 million. If the expectations for Turkey to be removed from the grey list come true, the optimistic attitude in the market will be even stronger.

Turkey’s risk premium (CDS) fell to 260s and tested the lowest levels since February 2020. It is noteworthy that it remains below 300, which is seen as a critical point. It should be added that the external conjuncture and the ongoing optimism in foreign markets also contributed to this outlook.

Borsa Istanbul has recently diverged positively from foreign markets. The determination to implement the economic programme is clearly visible in the markets and economic data. In our articles since March, we have emphasised many times that the ground for foreign investor inflows and ‘carry trade’ applications has been formed in Turkey. The stabilisation of exchange rates with rising interest rates, the strengthening of interest rate cut expectations in the US and Europe, the widening of the interest rate gap between foreign and domestic markets, the fact that an agenda such as elections is left behind, and the fact that Borsa Istanbul is not seen as expensive compared to foreign stock markets despite its premium structure are developments that allow foreign investors to use this ground.

Turkey’s removal from the grey list and the reopening of swap channels for foreign investors is a widely voiced issue. If these expectations are realised, this may allow for a more relaxing outlook.

CBRT continues to accumulate reserves rapidly. After S&P recently upgraded Turkey’s credit rating, an official speaking on behalf of the institution listed the CBRT’s reserve status among the first criteria they will look at in their future rating assessments. Domestic residents’ foreign currency deposits in banks decreased by $3.2 billion to $172.8 billion, while currency-protected deposits decreased by $36 billion to TL 2,196 billion. As can be seen from the data, the return to TL accelerated.

It is seen that domestic investors have started to participate in the outflow movement in Borsa Istanbul, where foreign investors are the locomotive, despite high interest yields. Despite the rise in the BIST100 Index, the evaluation of the slight decline in the foreign swap custody ratio in recent days shows this. It may have been thought that ‘where there is movement, there will be abundance’. In the upward trends experienced after the pandemic, while domestic investors pulled the stock market up, foreigners stood on the sidelines. These days, the opposite is the case. Optimism can be maintained in Borsa Istanbul.

Course of Inflation is Important

The soft underbelly of the economic programme is inflation. No progress has been achieved at this point yet. The timetable given by the economic management was for inflation to peak until May and to decline after June. In this respect, despite inflation reaching 70 per cent, the markets did not react negatively. If inflation starts to fall as of next month according to the road map, this will reinforce confidence.

Otherwise, the optimistic perception weakens. At this point, as CBRT President Fatih Karahan said, additional tightening may be on the agenda. In this case, new interest rate hikes are the first measure that comes to mind. However, high interest rates may continue to keep foreign interest alive.

On Thursday 23 May, there is a CBRT meeting and interest rate decision. Expectations are that the interest rate will remain unchanged. The statements to be made after the meeting will be important.

New Peaks in the Stock Market

After profit sales in the stock market, the uptrend continues with new peak attempts. The first supports are at 10,370-10,320 levels. Continuation of the uptrend above these levels can be expected. The first resistances are seen at 10.700-10.800 levels. Above this level, the next resistances are at 11,200-11,300. Although profit sales are seen at resistance levels in the index, the upward movement may maintain its strength.




Source:  Foreigners rushed to bonds, Zeynel Balcı, Hurriyet