Sell-off of Turkish stocks continues for fourth consecutive week

By bne IntelliNews June 2, 2016

Foreign investors continued to sell Turkish stocks last week as they remain wary of the rising political pressure on the central bank following the recent the cabinet reshuffle.

There was an outflow of $65.5mn from Turkey’s equity market last week, data of the central bank showed on June 2. That followed an outflow of $636mn over the previous three weeks. The central bank, however, said the bond market saw a tiny inflow of $0.3mn in the week ending May 27, adding to $434mn inflows in the preceding two weeks.

Investors cheered the reappointment of market-friendly deputy premier Mehmet Simsek, but although he survived the latest cabinet reshuffle, the ex-investment banker now looks less powerful than before as his economic portfolio has shrunk. Investors are also concerned about the rising political pressure on the central bank to further cut interest rates to boost the economy.

At its latest rate setting meeting on May 24, the first one since the new governmetn took power, the central bank decided to cut the overnight lending rate by 50bps to 9.55

Morgan Stanley said in a recent report that fixed income investors in London maintain a broadly neutral stance on Turkish assets despite recent unexpected political developments. The bank cites four reasons why investors are not changing their positions: “Turkey is still performing relatively better compared to most of its peers in terms of macro indicators; Mehmet Simsek's continuation as Deputy PM is a signal that there should not be major changes in monetary and fiscal policy in the foreseeable future; locals' FX sales during volatile times proved to be an effective anchor against excessive TRY depreciation; and the base scenario in politics is a public referendum and it is mostly not seen as a game-changer.”

However, investors told Morgan Stanley that they could change their views and positions to negative if they see an ongoing rise in energy prices, political developments increasing the chance of early elections, a further deterioration in the tourism sector, increasing efforts to restructure loans -signalling rising problems in the real sector amid a combination of repercussions of currency depreciation and declining sales- and the central bank's ongoing easing cycle and its inability to respond effectively and timely when conditions turn more negative in the future.

NON-RESIDENTS' HOLDINGS OF EQUITY AND GOVERNMENT DOMESTIC DEBT SECURITIES ($ mn)
(Market Value) 27/05/16 20/05/16 13/05/16 06/05/16 29/04/16 22/04/16 15/04/16 08/04/16 01/04/16
STOCK                  
         EQUITY  43,541.6 42,311.2 43,521.9 44,114.5 50,278.3 50,352.3 49,426.1 47,455.4 48,286.0
         GDDS  (*) 35,019.3 34,277.7 34,690.3 34,751.5 36,868.1 36,876.5 35,725.8 34,618.6 34,858.6
            Repo 4,061.4 4,152.5 4,257.7 4,247.5 4,478.4 4,572.4 4,799.3 4,730.3 4,734.4
         Private Sector 952.6 1,000.2 1,006.1 1,009.6 1,008.7 1,008.1 992.4 1,011.8 1,016.2
NET TRANSACTONS (Adjusted for Foreign Exchange and Market Price Effects)    
         EQUITY -65.5 -163.6 -174.3 -298.3 10.1 84.4 335.5 -64.8 191.2
         GDDS (*) 0.3 166.1 268.3 -182.6 -81.7 176.5 878.6 -4.5 -209.4
             Repo -175.7 -38.7 48.0 -22.0 -105.7 -334.7 54.9 25.5 -206.5
         Private Sector -47.6 -5.9 -2.6 0.9 0.6 15.7 -19.3 -4.5 32.4
source: tcmb

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