Turkey - reasons for optimism
Turkish stocks are still an inflation hedge while there is now some optimism that Simsek and Erkan are the real deal in ensuring Erdogan sticks to the interest rate 180 degree handbrake turn.
See FT piece: https://www.ft.com/content/0e5520e2-27ac-44d0-9414-0076b1b5e2d9
I am optimistic of the latter because:
a) Turkey faces/faced falling off a cliff into a systemic crisis akin to 2000/01 if the pre-election policies continued. There was simply no choice but to change policy course. To continue would have risked disaster for the economy, and likely disaster for the ruling AKP in those local elections next March, that is if Turkey’s opposition can ever get its act together.
b) I think there has been a changing of respective powers of advisers around Erdogan. The rational/technocratic Bayraktar’s are increasing taking a bigger role, more trusted by Erdogan and he is listening. I think they are telling truth to power about a) and that’s behind the policy 180 and key appointments.
c) The new team are impressive and can design a route out of crisis - Simsek, Erkan, Akcay, Karahan H & F. Top notch.
d) We are seeing policy adjustment. Sure 900bps in rate hikes are not enough with inflation at 38% and according to the CBRT due to rise to 58% at year end. But rates are being augmented by macro prudential policies and fiscal tightening. This will weigh on domestic demand eventually helping the BOP and eventually inflation.
e) We are still in the summer months and with tourism revenues up 27% for H123 this should keep the current account in surplus for the next few months.
f) Gulf backing - $51bn committed from the UAE and more to come from Saudi, Qatar and Kuwait which could add to a $100bn programme. Now I know most of this is soft long term investment commitments but the Gulf guys no longer give free lunches. They invest to generate high returns and they will demand policy orthodoxy - competitive lira and orthodox monetary policy - as the price. This will support b) to d) above. They are investing in Turkey’s future - economic and political.
g) Re-engagement with the West, seen in green light for Sweden’s NATO bid but also push on EU front which at least should yield a new enhanced Customs Union. But importantly it means a toning down of the constant rhetoric about crises in Turkey - Western relations. That’s important for international business and investment into Turkey.