Turkish Equities: Quarterly Strategy Report: The Impact of Global Slowdown

Russia-Ukraine tension has increased risks of stagflation and even recession

  • As we entered the year 2022, the consensus expectation was that global inflation would gradually decline with the alleviation of global supply chain disruptions and supply-demand mismatches, global growth would slow down compared to 2021, but would remain above the historical average, and that there will be a normalization in monetary policies.
  • Yet, commodity prices spiked further with the rising tension between Russia and Ukraine, leading to new highs in global inflation, which has already historically peaked. The situation also has the potential to pull down global growth by 1.0%, according to some estimates, exacerbating the stagflation risk. Central banks, especially the FED, have prioritized inflation rather than growth, and sticked to an even more hawkish monetary policy stance.

There is now a growing concern that FED will make a policy mistake by tightening excessively, dragging the US economy into recession. These concerns were also reflected into the US yield curve, which recently flattened, or in some cases inverted. However, stock markets still seem far from recession pricing. We think that this situation may continue for a while more, but corrections may be seen in global stocks in the coming months.


Locally, the level of negative real rates keep currency and inflationary risks alive


  • The CBRT in fact finds the FX protected deposit (KKM) system and Liraization strategy to be very successful in stabilizing the exchange rate, and maintains its tendency to keep the policy rate constant despite the current inflation levels and the rise in commodity prices.
  • We expect that spiking commodity prices will drag CPI inflation to a higher plateau, breaching 70% as of May at the latest, and at the same time will impose a burden of up to $25-30 billion on the C/A balance. Accordingly, we think that the stabilization in TL may continue for a while more with the support of the KKM system, but we are skeptical that this stabilization could be maintained throughout the whole year.
  • In that context, we predict (assume) $/TL rate as 16.00 at end-2022, with a year-average of 15.07. However, we would like to point out that there are significant upside risks to this forecast. The most important risk factor may be the formation of a negative spiral between inflation and exchange rate (as in the 90s) in an environment where real interest rates are in the deep negative territory. In other words, in parallel with the increasing inflation, TL may tend to depreciate, which may feed into inflation again and lead to the emergence of a negative vicious circle.
  • In a scenario where $/TL rate remains around 16.00 by end-2022 (a year-average of 15.07), we would expect CPI inflation to test 70% by May, remain close to flat until November/December and close the year at about 49.5%. It should be noted that this forecast reflects a softening in energy and other commodity prices towards the end of the year (e.g.: Brent oil declining to $95/bbl per barrel), either due to an easing in Russia-Ukraine tension or slowdown in global growth.
  • In a scenario where the depreciation in TL exacerbates due to the inflation-currency spiral mentioned above, for example, in a scenario where the $/TL exchange rate reaches 17.80 by end-2022 (a year-average of 15.73), we expect that the CPI inflation will test 80% levels during the year and complete the year at about 65% (or even above) despite the help of the base effect.
  • The rise in commodity prices, particularly the natural gas, imposes a burden of up to $25-30 billion on our C/A deficit estimate, considering that we assumed the price of Brent oil at $80/bbl at the beginning of the year. We assume a limited loss of some $3 billion in our tourism revenues, again due to the Russia-Ukraine tension. Accordingly, we expect C/A balance to post a $38.5bn deficit (roughly 4.5% of GDP) by end-2022. Yet, this forecast also includes an assumption of normalization in spot natural gas prices. If natural gas prices remain at their current high levels and/or there is a further loss in tourism, the C/A deficit may reach $45-50 billion at the end of the year.
  • Despite the limited slowdown in domestic demand recently, industrial production remains strong with the support of exports. Accordingly, GDP growth may reach around 7.0% in 1Q22. However, we expect the weakness in domestic demand to become more evident throughout the year, as the depreciation of the TL erodes the purchasing power of the broad masses. Accordingly, we estimate the GDP growth to be 2.3% in 2022.
  • Depending on our expectations of a material slowdown in GDP growth, increase in interest expenditures and that expansionary fiscal policy is will continue, we think that the budget deficit/GDP ratio may rise towards (or even above) 4.0% in 2022.



Three Scourges of Turkish Economy: Unemployment, Inflation, and External Deficit | Real Turkey


The BIST-100 started the year with a strong momentum which helped for some relative performance reversal against the GEM’s

  • Despite the BIST-100 was up by 26% last year, it underperformed the GEM’s by the same amount (in USD terms) due to the weakness of the Lira.
  • So far this year, BIST 100 is up by %32. Thanks to a more stable Lira so far this year, this performance helped for a 30% relative return against the GEM’s during the same period. This performance is the strongest since the last quarter of 2020, while the market remains a major underperformer over the longer term.
  • In our view, the key reasons for this performance are as follows: (1) The heavily weighted commodity and export players have helped net earnings to grow by 50% in 2021, and more importantly their momentum continues so far this year. (2) Valuations dropped to levels not to be ignored as EV/EBITDA multiples for a number of firms are still at (some below) mid single digit multiples, and (3) given the above, and low deposit rates compared (17% levels) to the increasing CPI trend (50+%) investors have been buying stocks for protection.
  • In terms of comparable multiples (adjusted for inflation), we believe banks stand out with our 25-30% ROE expectations and 90% earnings growth estimates for 2022. We also observe that, while industrials were lagging the GEM’s in terms of EBITDA growth expectations 3 months ago, the GEM’s have approached the levels of their Turkish peers due to the higher CPI and slower growth expectations in their respective markets. The BIST-100 remains at a 38% EV/EBITDA discount against the GEM’s.
  • Our upside is 24% for the BIST-100 at a level of 3,081. This is raised from 2,625. Consequently, our upside is 33% for banks and 21% for industrials. On the other hand, we would like to mention that, we use a RFR of 25% in our DCF models and cut them gradually each year based on our macro assumptions, which could create a downside risk on fair value estimates is case of a prolonged higher interest rate environment.


We have a cautious approach post the 1Q 2022 earnings season which will end on May 10th

  • As we have mentioned one of the catalysts for the current momentum is strong earnings expectations. Hence, we feel most of these will be priced in at or slightly after the earnings seasons which could put investors on hold and await fresh expectations. Also, on page 24, we also provide some technical work which shows the index is approaching levels where it may have to absorb the current fundamentals, which also shows the banking segment appears to be more compelling than industrials.
  • Recently, Treasury Minister Nebati mentioned that the ministry was working an a new inflation indexed saving scheme. This product could be competitive for stocks.


Our model portfolio is up by 37.2% and outperformed the BIST-100 by 2.2% so far this year 

  • The relative performances of the stocks and the inclusion dates are as follows: Akbank: 10.4% April 7th, 2022, Arçelik 43% April 20th, 2021, Garanti Bankası January 24, 2022 -3.8%, Indeks Bilgisayar January 24th, 2022 -12%, Kardemir January 24th, 2022 10.7%, Koç Holding August 8th, 2020 72,9%, Mavi January 22nd 2020 29.9%, Logo Yazılım: March 17th, 2022 -0.7%, and Şise Cam January 24th, 2022 3%.
  • Target prices for Akbank, Arçelik, Garanti Bankası, Kardemir, Koç Holding, and Sise Cam are raised.

Economist Serkan Gonencler, Gedik Invest


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.