Investors souring on Turkish markets - Bloomberg

Turkish President Recep Tayyip Erdoğan’s policy pronouncements in the past week have emphasized the perilous state of the country’s markets, Bloomberg reported on Sunday.

The year has seen Turkish lira bonds lose some 20 percent of their value, while foreign stock ownership has reached near all-time lows and investor trust has been “shattered”, it said.

“It is imperative that we lower interest rates,” Erdoğan said in a televised interview last week. “For that, we need to see July or August for interest rates to start coming down.”

“The whole matter is to lift the weight of interest from cost inflation,” Erdoğan said.

“The risk of policy mistakes has increased so much that it overrides any other investment rationale,” Bloomberg cited as saying Viktor Szabo from London’s Aberdeen Asset Management, which has recently exited the local bond and currency markets in Turkey.

The determining moment for investors was Erdoğan’s removal of Naci Ağbal as central bank governor, Bloomberg said, after Ağbal raised interest rates, which the Turkish president doesn’t approve of. “Turkey’s markets have been depressed ever since,” Bloomberg said.

Şahap Kavcıoğlu, Ağbal’s successor, in an attempt to damage control following Erdoğan’s comments, said: “Expectations for an early easing of policy, which aren’t based on a just reasoning, need to disappear.”

Investors managing Turkish assets believe the market will bounce back once the country returns to financial stability, Bloomberg said.

Shying away from high macro event risks is “understandable” for investors, Sebastian Kahlfeld, responsible for a Turkish equity fund at DWS Group, told Bloomberg. “This should not cloud the fact, though, that several large Turkish companies are trading at record low valuations coupled with record-high dividend yields.”

But other investors aren’t willing to risk getting burned again, Bloomberg said. Foreign investors have sold $1.6 billion in Turkish equities in 2021, leaving the market to short-term investors.

Every new bout of volatility for the lira results in further depreciation in the exchange rate, and “obstacles preventing investors holding Turkish dollar debt increase”, Paul Greer, fund manager at London’s Fidelity International, told Bloomberg.