![]() ![]() ![]() “To keep the currency this competitive, the Central Bank of Turkey (CBT) might need to cut interest rates as early as March. This huge swing means Turkey will need to either: 1) pay off a lot of external debt 2) see FX reserves rise sharply or 3) allow the TRY to appreciate significantly. Net portfolio outflows of $1bn in the 12 months to October 2018 could become inflows of $10bn in 2019, and F DI might remain at around $7-8bn. If the oil price is flat, Renaissance thinks Turkey’s 12-month current account deficit will shrink from nearly $60bn in May 2018 to $1bn in July. One near-term market fall could come as early as March, if we see a global reflation trade led by China pushing up commodity prices sharply,” Robertson said. “This implies a lot of upside in the equity market over two years (even with multiple equity-market falls of at least 10%) and sustained deleveraging in the economy with bank lending shrinking until at least 2021. ![]() Its base case that Turkey will have a Brazil-style crash-and-recovery is panning out well, according to Robertson. “Next year is unpredictable,” but for now Renaissance thinks macro trends are underpinning its Turkey equity and local bonds overweight call.Įmerging and frontier markets investment bank Renaissance also sees the rally on Turkish markets as justified by the bold 625-bp policy rate hike back in September and predicts it has much further to go. The TRY is cheap by 18%, according to Renaissance’s real effective exchange rate (REER) model. In the absence of a policy rate cut, the Turkish lira (TRY) may well strengthen through 5.0 to the USD in the near term, Charles Robertson of London-based Renaissance Capital said on February 8 in an emailed note to investors entitled “Turkey: 2020+ uncertain, 2019 looks good”. ![]()
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