Turkey Wake up call: Macro and Political News, 28th January

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Wake – up call

BIST lost 1.63% yesterday as the global sell-off related to the coronavirus worries also took its toll on Turkish stocks. After a lower start, BIST100 index attempted to stage a comeback, climbing to 121.7k around 11:30AM. But the market yielded to the pressure in peer markets and pulled back to 121.0-121.3k range where it spent good part of the day. However, another round of selling after 5PM shed another 1k points until the close. Banks lost 1.60% on average with AKBNK and VAKBN underperforming. TUPRS, KCHOL, BIMAS, TAVHL, THYAO, PGSUS, ULKER, TKFEN, and SISE were among the weakest of non-financials while ASELS, TOASO, ENKAI, KORDS, PETKM, and HEKTS managed to buck the market slide. Today, our local macro agenda is muted apart from Treasury’s auction of 2-year TLREF-indexed bonds and direct placement of 2-year sukuk papers, wrapping up this month's borrowing programme. Domestic redemption is only TL0.69bn for the week while the total for the month stands at TL23.58bn vs a domestic borrowing target of TL15.0bn while Treasury has already raised TL14.68bn in the four auctions held so far. BIST seems off to a sideways start with a positive bias amid mixed signals from global markets. Lira is almost unchanged with the USDTRY pair around 5.9450 mark. U.S. futures are up about 0.55% in early trades while Asian markets are coming down further.
Macro and Political News:
(=) Erdogan: Road map to resolve Libya crisis determined… President Erdogan said Monday that the road map for the Libyan crisis has been determined and the U.N.-recognized Government of National Accord (GNA) has abided by all decisions taken so far while Gen. Khalifa Haftar, who fled from truce talks in Moscow and Berlin, is continuing to violate the cease-fire. Speaking to journalists on his way from Algeria to Gambia, President Erdogan stated that Haftar has to be stopped if there is to be peace in Libya. Referring to Haftar’s spokesman Ahmed al-Mismari’s statements Sunday, the president said that they did not go to Berlin and Moscow for a solution, but to explain their alleged rightful cause which shows Haftar’s real purpose. Erdogan further explained that he told German Chancellor Angela Merkel during her visit to Istanbul on Friday that Egypt and the United Arab Emirates are Haftar’s biggest supporters while Russia is lending support to Haftar’s forces. Erdogan added that the Abu Dhabi administration is financing Wagner and giving them arms and weapons, highlighting that Sarraj gave an important test in Moscow and he also came to Berlin and was ready to come to terms, while the other one (Haftar) fled. The president said that he believes with each day, the process is developing in favour of the Sarraj administration, giving the example of Haftar’s attempt to seize a district that was immediately taken back by GNA forces. Erdogan also pointed out that Russia entering Libya with Wagner is not right and is one of the biggest mistakes in his opinion.
Answering a question on recent Turkey-European Union relations, President Erdogan said that the EU acts inconsistently, at times showing goodwill while stalling at other times. Erdogan explained that the visa exemption process for Turkish citizens was supposed to be completed in 2014, but the EU always found something to drive Turkey into the corner. President Erdogan further indicated that the quadrilateral summit with Merkel, French President Emmanuel Macron and U.K. Prime Minister Boris Johnson that was slated for February could meet in March instead.
(=) Erdogan speaks with Trump about Libya and Syria… U.S. President Donald Trump spoke by phone Monday with President Erdogan about the conflict in Libya and Syria’s Idlib. White House spokesman Judd Deere said on Twitter that the two leaders discussed the need to eliminate foreign interference and maintain the ceasefire in Libya. The two leaders also discussed the fighting in Idlib, which has been the scene of fierce bombings by the Bashar al-Assad regime and its allies. Trump and Erdogan agreed that the violence being carried out in Idlib, Syria must stop. Also, during the phone call, the two leaders also discussed the situation in the Eastern Mediterranean. President Trump also highlighted the importance of Turkey and Greece resolving their disagreements in the eastern Mediterranean.
(=) Turkish Treasury borrowed over TRY5.7bn through auction… The Turkish Treasury borrowed nearly TRY3.4bn from domestic markets. The auction was held for two-year fixed coupon bonds - reopen (4th issue), semi-annually, 6.90% coupon rate - to be settled on Wednesday and mature on Oct. 20, 2021. The total tender amounted to TRY5.71bn with a 59.3% accepted/tendered rate. The term rate of the 630-day Treasury bills was accepted at 4.93%, while the average annual simple and compound interest rates were 9.85% and 10.09%, respectively. According to the domestic borrowing strategy, the ministry has projected some TRY61.6bn of borrowing from the market through auctions in the period of December 2019 to February 2020.
(=/-) Capacity utilization at 75.8% in January... Seasonally adjusted (SA) capacity utilization rate declined by 1.1 pps to 75.8 in January, the lowest level since April 2019, following an increase of 0.7 pps in November and 0.2 pps in December. Similarly, after increasing by 9 pps, in total, in the fourth quarter of 2019, SA real sector confidence index decreased by 2.3 pps in January and came down to 106.4. The deterioration was almost broad-based, with all items showing monthly declines except the 5.0 pps increase in general business situation. Meanwhile, the declines in investment expenditure (7.4 pps), in total amount of orders in the past three months (5.1 pps) and volume of output for the next three months were noteworthy. All in all, January figures points to a fluctuation course in the recovery of economic activity.
(=) Sectoral confidence starts year on high note… Confidence in Turkey's key sectors of services, construction, retail trade advanced on a monthly basis in January. The construction sector confidence index posted the highest performance this month, rising 14.6% month-on-month, Turkish Statistical Institute (TurkStat) data showed. The services and retail trade sectors' confidence indexes both increased 2.2% during the same period. Sectoral confidence indices calculated from the monthly survey results are evaluated within the range of 0-200. These indices indicate an optimistic outlook when the value is above 100, a pessimistic outlook when it is below 100.
(=) Moody’s: Turkey’s Islamic banking assets to ‘double’ in decade… Moody’s said USD2.6bn International Financial Centre in Istanbul scheduled to open in 2023 will be ‘new catalyst’. Turkey’s Islamic banking assets are set to double within a decade as government initiatives drive growth in the sector, credit rating agency Moody’s announced on Monday. According to a Moody’s report published today, Turkey’s Islamic finance sector is currently smaller than other large Muslim countries, and its slow start means it has ample room to expand. The rating agency added that the sector represented just over 5.8% of banking assets at the end of Sept. 2019, compared to Malaysia (33%) and Middle Eastern countries (15% - 77%). Noting that the Turkish government has founded three new state-owned Islamic banks from 2015 to 2019, the report said the country will continue to broad access and increasing competition. Moody’s also stated that that a state-funded USD2.6bn International Financial Centre in Istanbul (IIFC) is scheduled to open in 2023, which will be a new catalyst for growth. Underlining that the development of Islamic finance is a key pillar of the IIFC strategic plan, the report said that Turkey intended to establish Istanbul as global center for finance.
Moody’s underscored that Islamic banking is also benefitting from evolving regulation and supervision. To remind, Turkey’s stock market operator, Borsa Istanbul, launched trading in sukuk (Islamic bonds) in August 2018, deepening the country’s Islamic capital market activities. The Participation Banks Association of Turkey (PBAT), which groups Islamic banks operating in Turkey, set up a Central Advisory Board in 2018 to ensure standardisation of Islamic banking products and alignment with international Islamic banking practices. The report noted that PBAT targets an Islamic banking penetration of 15% by 2025. Further momentum may be brought by plans to equalize tax treatment for equivalent financial activities of commercial and Islamic finance institutions.
Sector and Company News:
(=) ENKAI bought 483k lots of its own shares with TRY6.55-6.68 price range per share.