Turkey’s benchmark stock index is climbing the most among major equity gauges worldwide in the past month as investors grow convinced that interest rate cuts will stimulate growth without causing the economy to overheat.
The nation’s benchmark ISE National 100 Index (XU100) rose 6.5 percent since Aug. 16, the best performance among 45 advanced and developing-nation equity markets included in MSCI Inc. gauges. Turkey’s index of 16 banks has rebounded 18 percent from its lowest level since 2009 on Aug. 10.
Turkish equities, which lagged behind peers in the first seven months this year, climbed after policy makers lowered borrowing costs on Aug. 4, the third cut since December, to bolster the economy amid the global slowdown. Societe Generale SA’s Benoit Anne said Aug. 19 that he “got it wrong” by earlier saying Turkish monetary policy was stoking inflation and overheating the economy. Brazil followed with a rate cut on Aug. 31, Russia lowered its repurchase rate Sept. 14 and analysts predict reductions in Mexico and Poland.
“Foreigners are just starting to realize that our central bank is doing great things for bank earnings at the moment, and the ISE is going to outperform as long as banks are being bought,” said Isik Okte, a trader at Finans Invest, an Istanbul-based brokerage.
The ISE Banks (XBANK) Index rose 4.2 percent last week to the highest level since July as authorities said lending curbs may be relaxed. The gauge trades at 8.8 times estimated earnings, compared with 9.4 times for the MSCI Emerging Markets Financial Index.
Halkbank, Garanti
State-run lender Turkiye Halk Bankasi AS (HALKB) jumped 5.8 percent to 11.8 liras. Yapi & Kredi Bankasi AS, the Turkish bank part- owned by UniCredit SpA, rose 5 percent to 3.8 liras. Turkiye Garanti Bankasi AS (GARAN), the largest Turkish bank by market value, gained 5.5 percent to 6.96 liras.
Turkey’s economy expanded 8.8 percent in the second quarter, more than analysts estimated and down from 11.7 percent in the first three months, according to data compiled by Bloomberg.
While the central bank’s actions have supported economic growth, Turkey’s current-account deficit remains too high and threatens the country’s financial stability, according to Ozgur Altug, chief economist at brokerage BGC Partners in Istanbul.
Turkey’s current-account deficit narrowed to $5.3 billion in July from $7.7 billion in June as the lira weakened and economic growth slowed, leaving the 12-month deficit at 9.5 percent of gross domestic product, the central bank said Sept. 12. The gap needs to narrow to 5 percent to 6 percent of GDP to stabilize the economy, Altug said.
Worst Performer
The lira has depreciated 4.7 percent against the dollar since the last rate cut, extending this year’s decline to 13 percent, the worst performance among more than 20 emerging- market currencies.
While the weaker currency may ease pressure on the current account, it may spur inflation as prices for imports increase, Ozgur said. A possible upgrade of Turkey’s debt to investment- grade status will depend on the balancing act of “achieving strong growth without high inflation,” Fitch Ratings Managing Director Ed Parker said in an interview Sept. 7.
Turkey’s central bank has lowered its benchmark interest rate by 125 basis points since December to a record-low 5.75 percent last month. Inflation accelerated to 6.7 percent in August from 6.3 percent a month earlier, government data showed.
Brazil, Russia
“What has changed from an equity perspective is that the rest of the world just looks so much worse now, and at least Turkey has growth and its banks are still pretty clean from a balance sheet perspective,” said Tim Ash, chief economist for emerging markets at Royal Bank of Scotland Group Plc in London. “I still think it is unorthodox when a central bank is cutting rates when it has a record high current-account deficit” financed by “hot money flows” along with rising inflation and rapid economic growth, he said in response to e-mailed questions.
Brazil cut its key rate to 12 percent from 12.50 percent last month, citing a “substantial deterioration” in the global economy. Russia’s central bank unexpectedly lowered its repurchase rate last week and raised the rate it pays on deposits to avert a potential ruble shortage in money markets as a slower global economy threatens the world’s biggest energy exporter.
Brazil’s Bovespa index of stocks climbed 3.3 percent since the cut, while the real lost 8 percent against the dollar. Russia’s Micex Index gained 0.9 percent after last week’s reduction in the repo rate, with the ruble weakening 1 percent.
Stock Forecasts
Turkey “may actually be at the forefront of central bank policy-making,” and countries including Mexico, South Africa, Hungary and Poland may follow, Anne, the head of emerging-market strategy at Societe Generale, said in an interview.
Goldman Sachs Group Inc. raised its recommendations on Turkish banks Sept. 14, saying earnings will be helped by cuts in reserve requirements after the government relaxed limits on loan growth a day earlier.
Banks are “likely to benefit from monetary stimulus as growth slows,” Goldman analysts including William Mejia and Waleed Mohsi in Dubai wrote in the report, recommending investors buy shares of Halkbank.
Shares of Halkbank may rally 36 percent in 12 months and Yapi Kredi will probably climb 26 percent, according to Goldman. Halkbank probably will advance 19 percent, and Garanti jump 25 percent, UBS AG wrote in a report Sept. 16, saying the country’s banking industry is “one of the best placed in emerging Europe, the Middle East and Africa to absorb the shocks from a global slowdown.”
“The central bank’s monetary policy, which has come under some criticism from most commentators, including us, looks arguably less misplaced, given the global slowdown,” UBS analysts Alexander Kyrtsis and Margarita Streltses said in the report. “Concerns over the overheating of the economy have been removed.”
The nation’s benchmark ISE National 100 Index (XU100) rose 6.5 percent since Aug. 16, the best performance among 45 advanced and developing-nation equity markets included in MSCI Inc. gauges. Turkey’s index of 16 banks has rebounded 18 percent from its lowest level since 2009 on Aug. 10.
Turkish equities, which lagged behind peers in the first seven months this year, climbed after policy makers lowered borrowing costs on Aug. 4, the third cut since December, to bolster the economy amid the global slowdown. Societe Generale SA’s Benoit Anne said Aug. 19 that he “got it wrong” by earlier saying Turkish monetary policy was stoking inflation and overheating the economy. Brazil followed with a rate cut on Aug. 31, Russia lowered its repurchase rate Sept. 14 and analysts predict reductions in Mexico and Poland.
“Foreigners are just starting to realize that our central bank is doing great things for bank earnings at the moment, and the ISE is going to outperform as long as banks are being bought,” said Isik Okte, a trader at Finans Invest, an Istanbul-based brokerage.
The ISE Banks (XBANK) Index rose 4.2 percent last week to the highest level since July as authorities said lending curbs may be relaxed. The gauge trades at 8.8 times estimated earnings, compared with 9.4 times for the MSCI Emerging Markets Financial Index.
Halkbank, Garanti
State-run lender Turkiye Halk Bankasi AS (HALKB) jumped 5.8 percent to 11.8 liras. Yapi & Kredi Bankasi AS, the Turkish bank part- owned by UniCredit SpA, rose 5 percent to 3.8 liras. Turkiye Garanti Bankasi AS (GARAN), the largest Turkish bank by market value, gained 5.5 percent to 6.96 liras.
Turkey’s economy expanded 8.8 percent in the second quarter, more than analysts estimated and down from 11.7 percent in the first three months, according to data compiled by Bloomberg.
While the central bank’s actions have supported economic growth, Turkey’s current-account deficit remains too high and threatens the country’s financial stability, according to Ozgur Altug, chief economist at brokerage BGC Partners in Istanbul.
Turkey’s current-account deficit narrowed to $5.3 billion in July from $7.7 billion in June as the lira weakened and economic growth slowed, leaving the 12-month deficit at 9.5 percent of gross domestic product, the central bank said Sept. 12. The gap needs to narrow to 5 percent to 6 percent of GDP to stabilize the economy, Altug said.
Worst Performer
The lira has depreciated 4.7 percent against the dollar since the last rate cut, extending this year’s decline to 13 percent, the worst performance among more than 20 emerging- market currencies.
While the weaker currency may ease pressure on the current account, it may spur inflation as prices for imports increase, Ozgur said. A possible upgrade of Turkey’s debt to investment- grade status will depend on the balancing act of “achieving strong growth without high inflation,” Fitch Ratings Managing Director Ed Parker said in an interview Sept. 7.
Turkey’s central bank has lowered its benchmark interest rate by 125 basis points since December to a record-low 5.75 percent last month. Inflation accelerated to 6.7 percent in August from 6.3 percent a month earlier, government data showed.
Brazil, Russia
“What has changed from an equity perspective is that the rest of the world just looks so much worse now, and at least Turkey has growth and its banks are still pretty clean from a balance sheet perspective,” said Tim Ash, chief economist for emerging markets at Royal Bank of Scotland Group Plc in London. “I still think it is unorthodox when a central bank is cutting rates when it has a record high current-account deficit” financed by “hot money flows” along with rising inflation and rapid economic growth, he said in response to e-mailed questions.
Brazil cut its key rate to 12 percent from 12.50 percent last month, citing a “substantial deterioration” in the global economy. Russia’s central bank unexpectedly lowered its repurchase rate last week and raised the rate it pays on deposits to avert a potential ruble shortage in money markets as a slower global economy threatens the world’s biggest energy exporter.
Brazil’s Bovespa index of stocks climbed 3.3 percent since the cut, while the real lost 8 percent against the dollar. Russia’s Micex Index gained 0.9 percent after last week’s reduction in the repo rate, with the ruble weakening 1 percent.
Stock Forecasts
Turkey “may actually be at the forefront of central bank policy-making,” and countries including Mexico, South Africa, Hungary and Poland may follow, Anne, the head of emerging-market strategy at Societe Generale, said in an interview.
Goldman Sachs Group Inc. raised its recommendations on Turkish banks Sept. 14, saying earnings will be helped by cuts in reserve requirements after the government relaxed limits on loan growth a day earlier.
Banks are “likely to benefit from monetary stimulus as growth slows,” Goldman analysts including William Mejia and Waleed Mohsi in Dubai wrote in the report, recommending investors buy shares of Halkbank.
Shares of Halkbank may rally 36 percent in 12 months and Yapi Kredi will probably climb 26 percent, according to Goldman. Halkbank probably will advance 19 percent, and Garanti jump 25 percent, UBS AG wrote in a report Sept. 16, saying the country’s banking industry is “one of the best placed in emerging Europe, the Middle East and Africa to absorb the shocks from a global slowdown.”
“The central bank’s monetary policy, which has come under some criticism from most commentators, including us, looks arguably less misplaced, given the global slowdown,” UBS analysts Alexander Kyrtsis and Margarita Streltses said in the report. “Concerns over the overheating of the economy have been removed.”
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