Russian tycoon Mikhail Fridman on November 9 grabbed the opportunity presented by a short-lived spike in the Turkish lira (TRY) and the latest ‘vaccine rally’ on global markets to benefit from the sale of a 5% stake in Turkey’s largest mobile operator Turkcell (TCELL), Bloomberg reported on November 10.

“Mkts, of course, are not interested in the nuance of an announcement [on a potential coronavirus vaccine] like yesterday's and immediately front-loaded all the good news because the system is still flooded with all that central bank liquidity sloshing round. It's not just boats that are holed below the waterline which floated yesterday but even those languishing on the seabed like Turkey. [The Borsa Istanbul] and the [USD/TRY rate] both rallied about 5% yesterday on what I can only describe as faith of Islamic dimensions that all would be well after the cabinet reshuffle enforced on Weirdogan [Turkish President Recep Tayyip Erdogan] by the resignation of his son-in-law [Turkish finance minister Berat Albayrak],” Julian Rimmer of Investec wrote on November 10 in a note to investors.

Fridman raised around $205mn in an accelerated share-sale led by Credit Suisse and Goldman Sachs as book-runners.

The identity of the buyers was of course shrouded due to the financial industry’s love of confidentiality, but it seems they were foreign investors.

“This was a well-timed transaction,” Nick Koemtzopoulos of Credit Suisse told Bloomberg.

The deal was the largest non-banking-related share sale seen in Turkey since the initial public offering (IPO) of retailer Sok in mid-2018, he added.

The sale by Fridman’s Imtis created a likely scenario of “overhang” in Turkcell’s shares, given that more stock could be sold, Ivan Kim of Xtellus Capital told the news agency.

“[Fridman’s] remaining [19.8%] stake is for sale as well,” he said, although it presently remains subject to a 12-month lock-up period.

Meanwhile, Turkcell’s main shareholder, essentially the president, Erdogan, on November 10 was again talking up the beleaguered Turkish economy, while Turkish assets were being handed out to muscular bulls amid the country’s “perfect storm”.

Sundry narratives on Turkey bulls

Market participants were naturally attempting to distinguish who the buyers were in November 9’s Turkish rally.

“Retail punters were swept up in the frenzy this afternoon but I doubt intls would be participating,” Rimmer wrote in his note.

It is almost certain by now that these “retail accounts” are not actually so retail as they are single-handedly coordinated. So, if Rimmer has it right, we can assume that the government has once again ridden a Borsa Istanbul rally.

Meanwhile, Is Invest’s daily share bulletin looking at foreign investor-held stocks showed that foreign-holdings on the Borsa Istanbul rose to 49.03% at market close on November 9 from 48.98% the previous day, suggesting foreign player portfolio inflows of around $100mn.

We have before seen hedge funds raising the Istanbul stock market out of the depths within a few hours with around $100-150mn. But they are able to run as fast as they hit.

Rallies in Turkey’s credit default swaps (CDS) and eurobonds may also be a sign of foreign interest in a Turkish rally.

However, the government-run banks are still active in the USD/TRY market. With no end to the burning of FX reserves, one should not be convinced by any so-called organic recovery in Turkish markets.

The "He" mentioned here is Erdogan who has "leaked" the idea that he was not aware of the negative state of the central bank's reserves.

On November 10, business daily Dunya reported that Turks continue to hold on to their physical gold and FX.

On the same day, a Reuters newsroom outside Turkey quoted an unnamed forex trader at an unnamed Turkish bank as saying that locals’ demand for hard currencies and in particular gold was evidently persisting in the financial system.

Reuters’ Turkish service, on the other hand, quoted unnamed bankers as saying that the lira strengthening on November 9 following the exits of the central bank governor and finance minister was mainly ridden by foreigners and that lira positions on the London swap market significantly rose for one day.

There was one or a few billions worth of USD inflows, according to one of the unnamed bankers.

Local individuals both bought and sold while FX purchases were more dominant on the part of the institutions, an unnamed banker told Reuters Turkish.

BloombergHT, on the other hand, reported on November 9 that foreigners and local individuals bought lira but local institutions bought FX.

The central bank will release its portfolio flow data for this week on November 19 at 14:30 local time.

Who’s boss?

“We are in a historic struggle against those who want to force Turkey into modern capitulations through the shackles of interest rates, forex rates and inflation,” Erdogan said on November 10, warming to one of his well-known themes.

Turkey would overcome political obstacles to work on improving economic growth, employment and exports, he added.

Erdogan also once again ruled out the IMF route.

If we want to take what Erdogan says deadly seriously, then there will be no rate hike and no cheap assets for the City of London.

But the markets preferred to focus on the new finance minister Lutvi Elvan’s pledge in a written statement to rein in inflation and focus on a “market friendly” transformation of economy.

Those who think they can snaffle a bargain amid the enlivened Turkish markets have until November 19 when the central bank has its next scheduled monetary policy committee (MPC) meeting.

“I would think to something around the 15% mark,” Timothy Ash of Bluebay Asset Management wrote on November 10 in a note to investors looking at policy rate prospects.

If Erdogan plans to wait until the scheduled meeting before making the next rates move, Turkey will remain open to some shockwaves as the intraday volatility on its markets is rolling like the ocean waves once again.

Also on November 10, Goldman Sachs analysts reiterated their cautious stance against over-interpreting the installing of a new central bank governor and new finance minister.

“Most importantly,” Goldman ponders whether there will be enough political support to bring about the required tightening.

The US investment bank has stuck with its forecast for a hike in the main policy rate to 17% by end-2020 from 10.25% currently.

And, no joke, the most generous grader of Turkey, Fitch Ratings, said on November 10 that the replacement of the central bank chief brings the possibility of an improvement in the country’s monetary policy credibility.

Douglas Winslow of Fitch told Reuters on November 6 that the lira had not actually caused “severe stresses” in the external financing positions of the banks or corporates; and the trend in Turkey’s FX reserves had “become somewhat less negative”.

Only a few hours then went by before fresh political turmoil over the lira and central bank reserves started in Turkey with the firing of the central bank governor, announced by presidential decree during the early morning hours of November 7.

Maxim Rybnikov of Standard and Poor’s told Reuters on November 9 that the ramifications of Turkey’s replacement of its central bank governor and the departure of its finance minister on monetary policy remained uncertain.

The funniest story of the day was perhaps from Bloomberg. It suggested that Russia was pursuing a plan to “quickly” sell eurobonds before “Sleepy Joe” Biden takes over at the White House.

Erdogan wrote a letter to Biden on November 10 to congratulate him on becoming president-elect. Erdogan does love letters. Trump’s October 2019 “Don’t be a tough guy. Don’t be a fool!” letter to Erdogan remains one of a kind in the history of modern diplomacy, though Trump still has the fag-end of his presidency left to outdo himself insulting the president of another country. Turkey’s president claimed to have chucked Trump’s letter in the bin, but he replied to it with a missive asking him to beg understanding of Turkey from the US Congress.

On a note of interest, Erdogan’s weekend saw him fire a central bank governor who is a former director at Halkbank, the lender in hot water with US prosecutors for alleged Iran sanctions-busting. Albayrak, who served as Erdogan’s right-hand man in various schemes, is of course also out. Hakan Atilla, the former Halkbank director who did jail time in the US in the sanctions case, remains head of Borsa Istanbul, but he’s paid his penalty and has a clean nose at the moment.

Main opposition Republican People’s Party (CHP) leader Kemal Kilicdaroglu, who congratulated Biden as early as November 7, wryly remarked on November 9 that Erdogan cannot “save the king by sacrificing the queen”.