Turkey Wake up call: Macro and Political News, 24th February

This analysis by GLOBAL Securities is presented to you by Raiffeisen Centrobank AG. Raiffeisen Centrobank AG acts solely as a distributor of this analysis and has not introduced any material changes to the content of this analysis or any recommendation included herein.

Wake – up call

BIST climbed 1.03% on Friday on hopes that a political solution will be reached between Ankara and Moscow regarding rising tensions in Syria’s Idlib region, but was still down 2.76% for the whole week. Index opened lower and zig-zagged around the neutral line until around 3PM. President Erdogan’s statement that he would speak with his Russian counterpart later in the afternoon changed the sentiment for the better and the index jumped almost 2,000 points in less than 30 minutes before stabilizing around the 117k mark where it closed the day. Banks underperformed with the 0.66% increase in their sector index amid some weakness in ISCTR. TTKOM, EREGL, KRDMD, ASELS, AEFES, and Koza Group stocks stood out among the gainers while CCOLA, TKFEN, ULKER, TCELL, and TAVHL topped the decliners. Today, our local macro agenda involves February'20 Manufacturing Capacity Utilization Rate (stood at 75.5% in January'20 and was 74.0% back in February'19) and Real Sector Confidence index (was at its 9-month high of 104.1 in January'20 and had stood at 97.2 back in February'19) both to be released at 10AM local time. Separately, Ministry of Tourism will disclose the tourist arrival numbers for January'20 at 11AM. Foreign tourist arrivals had climbed 10.1% yoy to 2.15mn in December, bringing the cumulative FY19 arrivals to 45.06mn visitors, up 14.1% from 2018. BIST seems off to a negative start as the spread of coronavirus to new countries including Italy is weighing on global markets and lira is also a tad lower with USDTRY now at 6.1167 vs 6.1131 at Friday’s closing bell. U.S. futures are down c.1.4% and Asian equity benchmarks are almost all trading in the red.
Macro and Political News:
(=) Erdogan and Putin reiterate commitment to all agreements on Syria’s Idlib… President Erdogan and his Russian counterpart Vladimir Putin discussed late Friday the developments in Idlib town in northwestern Syria, which has recently seen a humanitarian disaster due to heavy bombardments by the Assad regime and its main backer Russia. In the phone call, the leaders reiterated their willingness to fully implement all agreements regarding measures to defuse tensions in the city.
According to a statement by the Presidency, Erdogan told Putin it is imperative that Assad regime’s actions and the consequent humanitarian crisis must be stopped in Idlib, and that the Sochi deal must be implemented in full. According to the statement, developments in Libya were also discussed. Recall, speaking on Friday, Kremlin spokesman Dmitry Peskov said Russia is discussing the possibility of holding such a summit on Syria with the leaders.
(=) Turkey urges Russia to uphold Sochi agreement… Turkey has called on all sides in the Idlib conflict to keep promises and work toward stability in Syria, as it strives to honour the Sochi agreement with Russia. Presidential communications director Fahrettin Altun said over the weekend that Russia’s support for the Assad regime worsens the already terrible humanitarian situation, adding that Turkey is faced with 1 million refugees along its border with Syria which heightens security risks. Referring to the Sochi agreement in September 2018 between Turkey and Russia for a safe zone in northwest Syria, he urged all sides to keep their word. Altun said, Turkey made an agreement with Russia in Sochi, (Russia) and the country is trying to honour that agreement. He stressed that Turkey no longer has patience for the Assad regime’s horrible actions which have caused the loss of innocent lives and destabilized the region. He also called Russia to not allow the regime to make terror groups an excuse for ethnic cleansing.
(=) Erdogan: Road map set in Syria’s Idlib… President Erdogan said that as a result of talks with his Russian, German and French counterparts, the countries had established a road map for the situation in Idlib, which has recently seen a humanitarian disaster due to heavy bombardments by the Assad regime and its main backer Russia. He said that he had talked with Russian President Vladimir Putin late Friday, German Chancellor Angela Merkel and French President Emmanuel Macron, stressing that they had set about a plan in which Turkey was at the table of regional arbiters, adding that Turkey will take more robust and determined steps. Erdogan underscored that Turkey will continue to work it has started without taking a step back and hopefully achieve the goal of regional stability. Erdogan stressed that he plans to hold a four-way summit on Idlib with French President Emmanuel Macron, German Chancellor Angela Merkel and Russian President Vladimir Putin. He added that he clearly expressed Turkey’s determination on this matter to Putin on Friday.
(+) President Erdogan calls for cooperation in joint phone call with Macron and Merkel… President Erdogan held Friday a phone call with French President Emmanuel Macron and German Chancellor Angela Merkel. President Erdogan said the aggression of the Bashar Assad regime and its backers need to be stopped. He also underlined that concrete action was needed to prevent a humanitarian crisis in the region. About Libya, Erdogan said everyone has to work together toward sustainable policies that would enable the Libyan people to achieve peace and stability. The phone call came after Merkel and Macron told Russia’s Vladimir Putin in a phone call on Thursday that they want to meet him and Erdogan to defuse the crisis in Syria.
(+) Erdogan to meet Putin, Merkel and Macron in March… President Erdogan said on Saturday that he will meet with the leaders of Russia, Germany and France on March 5 to discuss the recent situation in Syria and Libya. Referring to Friday’s phone calls with Russian President Vladimir Putin, German Chancellor Angela Merkel and French President Emmanuel Macron on Syria, President Erdogan said that the Idlib issue is as important as Afrin and the Peace Spring region and that he called for a summit on March 5 to discuss the same issues. He underlined that Turkey’s operations brought peace to the areas that were held by the [YPG/] PKK terrorist group for a while, and Turkey aims to establish the same peaceful environment in Idlib.
Stressing the power changes in the region, Erdogan underlined the importance of locating Turkey in a right position, and said that the country has been fighting for a new war of liberation as a country and nation. He said that Turkey has enough power and capacity to pursue an independent policy and implement this on the ground. Referring to Turkey’s strategy in the region, Erdogan said that after phone calls with Putin, Macron, and Merkel on Friday, a roadmap was drawn. Recall, in a phone conversation on Friday, Erdogan told Putin that the Assad regime must show restraint and the humanitarian crisis must end in Idlib. He added that resolving the crisis unfolding in Idlib hinges on full implementation of the 2018 Sochi deal. Both leaders reiterated their commitment to all agreements reached concerning Syria. In the phone call with Macron and Merkel, Erdogan also said the aggression by the Syrian regime and its supporters in Idlib should come to an end.
(+) US says stands by NATO ally Turkey against Assad regime attacks in Syria’s Idlib… The U.S. expressed condolences Friday to Turkey following deadly Syrian regime attacks on Turkish positions in northwestern Syria’s Idlib province used for coordination and de-escalation. A State Department spokeswoman told state-run Anadolu Agency on condition of anonymity that the U.S. stands by NATO Ally Turkey against these actions. President Donald Trump, in his call with Turkish President Erdogan on Saturday, expressed his concern over the violence in Idlib and reiterated our call for Russia to end its support for the Assad regime’s atrocities and for a political resolution to the Syrian conflict.
(=) US official confirms Turkey asked for Patriot missiles… The Turkish government recently asked the U.S. to deploy Patriot air defense systems on Turkey’s southern border, according to an undisclosed U.S. official. The official said that U.S. is aware of a request for Patriot systems but understand no decision has been made, adding that the request had been made recently.
(=) Turkish and Russian defense ministers discuss Syria… Turkish and Russian defense ministers held a phone conversation on Saturday to discuss the situation in northwestern Syrian province of Idlib. Hulusi Akar and Sergey Shoygu exchanged views to find a solution to the conflict in Idlib, according to the Turkish Defense Ministry. In a separate statement, the Russian Defense Ministry said Shoygu and Akar discussed the ways to stabilize the situation in Idlib.
(+) New company launches up 26.6% in January… The number of newly established companies in Turkey jumped 26.6% on an annual basis in January. Last month, almost 10,500 new businesses started, up from some 8,300 in the same month last year, the Turkish Union of Chambers and Commodity Exchanges (TOBB) said in a report. The top three fields of operation among new companies were wholesale and retail trade, manufacturing, and construction. This January, some 1,100 companies with foreign partners were launched. The figure was nearly 1,200 in January 2019. The report showed that some 2,200 companies went out of business in the month, rising 9.9% from the same month last year.
(+) Turkey’s external assets increase at end-2019… Turkey’s net international investment position (NIIP) improved as of the end of 2019 versus the end of previous year, as its assets abroad increased at a higher pace than liabilities against non-residents. Turkey’s assets abroad reached USD250.6bn at the end of last year, rising 9.4% from the end of 2018. The country’s liabilities against non-residents rose slightly by 0.3% to hit USD599.5bn in the same period, bringing the NIIP to minus USD348.9bn as of Dec. 31, down from minus USD368.5bn at the end of 2018. Reserve assets were USD105.5bn at the end of last year, posting an increase of 13.4%, while other investments came in at USD94.5bn, up 6.5% during the same period.
(=) Fitch affirms Turkey rating at BB; outlook stable… Fitch rating agency affirmed Turkey’s credit rating at “BB” with a stable outlook Friday. Fitch said in a statement that economic growth is recovering strongly, inflation has fallen from 20% at the beginning of last year, the current account has improved and external risks, although still high, have eased, supported by the real effective exchange rate adjustment and private sector deleveraging. The agency forecasted 4% GDP growth in 2021 with stronger investment, some moderation in private consumption growth and a smaller drag from net exports. Fitch added that they continue to estimate Turkey’s trend rate of growth at 4.3%. Fitch forecasted the current account returns to deficit, of 0.9% of GDP in 2020 and 1.8% in 2021. It added that inflation will be 10.5% at end-2020, helped by tax adjustments and lower energy prices, and 10.0% at end-2021.
(=) Turkish banks hire EY as asset manager option gains steam for NPLs… Turkish banks have hired Ernst & Young to analyse launching an asset management company (AMC) to house billions of dollars of bad debt, an idea that has gained traction to help solve a problem that has loomed since a 2018 currency crisis. The Banks Association of Turkey confirmed to Reuters on Friday it hired the accounting firm. Ernst & Young was hired earlier this month and it aims to publish a preliminary report on the viability of an AMC in March or April. One of the sources said some in the banking sector are calling the idea a “mega AMC” since it would house non-performing loans (NPLs) from an array of Turkish companies including those in the hard-hit construction and energy sectors.

Sector and Company News:

Treasury will hold two bond tenders... Accordingly, the Treasury will hold bond issuance tenders today and tomorrow. Today’s tender will include the reissuance of 2y maturity with 6month coupon payment bond while the tender for tomorrow will include 2y maturity with 3month coupon payment bond.

(=/+) TOASO management will propose TL2.40 DPS to its AGM, yielding 9.0% and 81% pay-out ratio. Our pay-out ratio estimate was 60%. (Expected dividend date: March 25, 2020)

(=/+) SISE, TRKCM Ministry of Commerce announced customs in some glass and glassware products. This may provide price advantage in the market for SISE group companies, TRKCM and Pasabahce.

(=) US Court of Appeals refused HALKB’s request for “limited and privileged” participation in judicial process. Formerly, the next trial was set for the date of 25th Feb however, the court is expected to determine a new date upon the end of HALKB’s appeal process.