Turkey Wake up call: Macro and Political News, 10th January

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Wake – up call

BIST jumped 4.53% yesterday asthe improving risk appetite in global markets seemed to have convinced foreign institutional buyers to flock into Turkish equities. After a positive start and a breather around the 115.5k mark, BIST100 index started a steep rally led by banks and also joinedby key non-financials this time and ended the day with over a 5,000-point increase. Banks led by GARAN, ISCTR, and AKBNK increased 6.75% on average. TTKOM, THYAO, TCELL, SAHOL, PETKM, EKGYO, and TUPRS were among the visible outperformers while KOZAL wasthe only name in the BIST100 universe to close lower for the day. Today, our local macro agenda showcases the unemployment statistics for September'19 to be released at 10AM local time. Headline unemployment had declined 0.2pp to 13.8% in September mainlydue to a lower labor participation rate while remaining visibly above the 11.4% level for same month of 2018. Separately, CBT's monthly expectations survey will be revealed at 2:30PM. BIST seems off to an uptick start as the buoyant mood prevails in globalmarkets. Lira is flattish around the 5.8750 mark vs the greenback. U.S. futures are up some 0.25% in early trades and Asian indices except for Chinese benchmarks are all trading in the green.
Macro and Political News:
(=) Libya welcomes Turkey and Russia’s call for cease-fire… Libya’s High Council of State and the Government of National Accord (GNA) welcomed Turkey and Russia’s call to reach a cease-fire in the country. Nevertheless, rebel KhalifaHaftar has rejected Turkey and Russia’s call for a cease-fire. Turkey and Russia urged Libya’s warring parties the previous day to declare a cease-fire by Sunday as warring factions clashed and carried out airstrikes in a conflict drawing increasing foreigninvolvement and concern. To remind, Turkey backs Fayez al-Sarraj's Tripoli-based, internationally recognized GNA and has said it will send military advisers and troops to reinforce its support, while Russian military contractors have been deployed alongsideHaftar's eastern-based Libyan National Army (LNA).
Any cease-fire deal will likely be hard to enforce after a recent escalation in fighting around Tripoli and Sirte, and given the fractious, loose nature of Libya’s military alliances.The United Nations has been leading efforts for months to pave the way for a truce and political negotiations in Libya, a major oil and gas producer, with few visible signs of progress.
(+) Russia announces cease-fire in Idlib upon deal with Turkey… TASS news agency reported that cease-fire has been established in the north-western Syrian region of Idlib. According to the agreements with the Turkish side, the cease-fireregime was introduced in the Idlib de-escalation zone starting from 14:00 Moscow time (1100 GMT) on Jan. 9, 2020. Recall, earlier on Wednesday in a meeting held in Istanbul between President Erdogan and his Russian counterpart Vladimir Putin, both leadersagreed to continue their commitment to sovereignty, independence, political unity and territorial integrity of Syria. Recall, the Idlib region has seen an uptick in violence recently as forces loyal to the regime of Bashar Assad, supported by Russian airstrikes,have launched a fresh assault to capture one of the largest urban centers in the area. The Assad regime has repeatedly vowed to take back the area, and bombardments have been continuing despite a previous cease-fire.
(=) Erdogan: Turkey’s security begins far beyond borders… President Erdogan on Thursday said Turkey would continue defending its rights and interests, adding that the country’s future and security began far beyond its borders. Erdogan asserted that Turkey will continue to defend its rights and interests in Iraq, Syria and the Mediterranean. Referring to joint plans with Libya to send Turkish troops to the North African country, Erdogan said: “We are in these lands [Libya], whereour ancestors made history, because we were invited there to resolve injustice and persecution”. He said Turkey would provide “the best response” to those who did not understand that the country’s security began beyond its borders, slamming criticism againstthe decision.
(=) Erdogan and Merkel discussed latest developments in the region… President Erdogan and German Chancellor Angela Merkel discussed the ongoing U.S.-Iran tension, Libya and Syria over the phone on Thursday. In a statement, Turkey’s Directorateof Communications said that the two leaders discussed regional and international developments. The tensions in the region have run high since the killing of an Iranian top general in an airstrike by the U.S last week.
(+) Treasury and Finance Minister: Turkish economy grew by 5% in 4Q19… Treasury and Finance Minister Berat Albayrak has predicted that the Turkish economy grew by 5% in the fourth quarter of 2019. Albayrak said that the activity in 2019 wasbeyond expectations and in turn the full-year growth will come in at 0.5%. Albayrak underscored that the Turkish economy entered 2020 on a stronger footing, adding that Turkey needs to have an economic structure and complete a transformation which help itseconomy weather fluctuations in the global economy. To remind, the government targets 5% economic growth each year between 2020 and 2022, according to the new economic program released in September last year.
(+) WB: Turkey’s growth to rebound in 2020… The World Bank expects that Turkey’s growth will rebound to 3% in 2020. Franziska Ohnsorge, manager of the World Bank’s Development Economic Prospects Group, told AnadoluAgency, highlighting that the 2019 growth was higher than the expected vs WB forecast of negative growth. She said, they were expecting some sorts of consolidation, tightening of the policy in last year but it did not materialize. Hence, the World Bank updatedTurkey’s growth forecasts for 2019 from -1% to 0%. The Bank expects a cyclical rebound in 2020 to 3% growth, and 4% in 2021 and 2022 as investment and imports recover from a deep contraction in 2019. That is a largely policy uncertainty is calming, globaltrade is recovering and Turkey does benefit from global trade. The World Bank is expecting a gradual pick of Turkey’s growth. It rests on strong assumptions; it does rest on the assumption that the financial market would not come under stress again.
Also, the IMF report said the Turkish economy may see a growth of 0.25%, reversing previous forecasts of a 2.5% contraction while the Organization for Economic Cooperation and Development(OECD) revised the 2019 forecast to 0.3% from a 2.9% contraction. The U.S.-based credit rating agency Moody revised Turkey's economic growth forecast to 0.2% for 2019 from a 2% contraction and 3% for 2020 from 2%, citing the country's strong economic recovery.
(+) Turkey targets USD190bn in exports in 2020… The head of the Turkish Exporters’ Assembly (TIM) said Thursday that Turkey is targeting USD190bn worth of exports in 2020. Despite multiple hurdles, the country’s exportsreached an all-time high in 2019 as they crossed USD180.5bn, up 2.04% YoY. Imports dropped by 8.99% to reach USD210.4bn, while foreign trade deficit decreased by 44.9% YoY from USD54.3bn to USD29.9bn. Foreign trade made a record contribution of 4.7 pointsto Turkey’s growth, the largest contribution seen in 18 years in Turkey. In 2019, the export/import coverage ratio was 85.8% in 2019, up from 76.5% in 2018. According to current figures, exports this month rose 5% over January 2019.
The average estimates for the fourth quarter of the year are 4.5% to 5%. The overall annual growth forecasts vary by 0.3% to 0.6%. The government forecasts a 0.5% growth for the wholeyear. Also, the new economic program (NEP), unveiled in September last year, targets a 5% annual growth rate for 2020, 2021 and 2022
(=) The CBRT’s survey of expectations (Jan) to be released at 14:30PM local time… To remind, the CPI expectations for the next 12 months dropped to 10.07% in December from 10.46% in November, while the CPI expectations for the next 24 monthsdeclined to 8.94% from 9.6% over the same period. We expect around 100bps rate cut in the Jan 16 MPC meeting.
(=) Unemployment rate (Oct) to be released at 10:00AM local time… There is no consensus available. To remind, Turkey’s seasonally-adjusted unemployment rate moderated MoM to 13.9% in September from 14.1% in August.
Sector and Company News:
(=/+) PGSUS announced that it has entered a 20-year lease agreement, with a term extensionuntil the end of 2048 with the airport operator Havaalani Isletme ve Havacilik Endustrileri A.S. ("HEAS") for a development area with a covered hangar space of 19,133 sqm with the aim of constructing a technical maintenance hangar to carry out line, componentand base maintenance for the aircraft, engines and other components forming Pegasus’ fleet at its main base at the Istanbul Sabiha Gökçen Airport. The lease term will commence upon the completion and acceptance of the hangar construction by Pegasus. We believea new aircraft maintenance center investment will support the company’s long term growth prospects and hence deem the news slightly positive for the stock.

(=) THYAO posted 5.5mn passenger traffic for December 2019, down by 0.5% YoY. During thisperiod, domestic passengers carried were down by 11.5% YoY, while international pax were up by 7.7% YoY. Load factor, on the other hand, improved by 50bps, reaching 80.7%, with 10bps lower and 70bps higher in domestic and international load factor. Cargo/Mailcarried in December increased by 6% YoY to 137,882 tons. Looking at the cumulative data, total pax was down by 1.1% YoY to 74.3mn in 2019, with contraction in domestic and expansion in international pax, meanwhile cumulative load factor was 30bps lower at81.6%. Domestic load factor increased by 90bps during this period, yet international load factor was down by 40bps.

(=) CCOLA In 4Q19, consolidated sales volume increased by 0.8% YoY to 230mn UC. We see a4.9% YoY and 14.5% YoY growth in Sparkling and Stills segments, respectively. However, Water and NRTD Tea categories declined by 13.0% YoY and 9.2% YoY, respectively. Growth in the core business (exc. NRDT Tea) was 2.4% in the period. Domestic volume was upby 4.9% to 126 million UC, mainly derived by favourable weather conditions. International operations contracted by 3.6% YoY to 104 million UC volume. Pakistan volume was down by 15.2% YoY in 4Q19, due to continued slowdown in the overall industry and priceincreases in 3Q19 as well as de-stocking at distributors at year-end. Across the Middle East, volume contracted by 3.3% YoY. Sales volume in Iraq declined by 4.8% YoY, reflecting the political unrest in the country, while sparkling category increased by 5.7%YoY. Jordan printed 7.3% YoY growth, supported by new cooler/refrigerator placements. Central Asia registered 11.1% YoY volume growth led by double-digit growth in Kazakhstan, Azerbaijan and Tajikistan markets. Kazakhstan posted 16.2% YoY growth, cycling6.7% YoY growth in 4Q18. New year consumer promotions and successful consumer activities contributed to the growth in the region. As a result, total consolidated volume reached to 1,316mn UC (Turkey: 662mn UC + International: 654mn UC) with a 0.1% increasein 2019, exceeding the Company guidance of a slight decline. 2019 sales volume is in-line with our estimate of 1,323mn UC (Turkey: 659mn UC + International: 664mn UC).