Turkey Wake up call: Macro and Political News, 30th January

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 inched down 0.09% yesterday in the sixth consecutive day of losses amid declining global risk appetite. Index opened higher and climbed to 120.7k in early trades yesterday that signalled a recovery from the recent slump, in tandem with global peers. But the market turned south after 2PM with the earlier gains fizzling out by the close. Banking index was down 0.72% with the selling pressure on AKBNK and YKBNK partly compensated by the strength in GARAN. TTKOM, TCELL, FROTO, ENJSA, EREGL, OTKAR, and BIMAS stood out among the gainers of non-financials while KOZAL, KRDMD, DOAS, TKFEN, PETKM, TUPRS, and MAVI topped the list of laggards. Today, our local macro highlight will be Central Bank governor Murat Uysal’s presentation of the bank's quarterly inflation assessment report in a press conference at 10:30AM local time. The bank predicted year-end CPI at 8.2% for 2020 and at 5.4% for 2021 in its previous assessment report while the latest survey of market expectations suggested 9.68% and 8.64% respective consumer inflation rates for 12-months and 24-months ahead. Separately, BRSA will release banking industry aggregates for December'19 at 2PM local time. Cumulative industry profits stood at TL3.43bn in December'18 and at TL5.26bn in November'19. BIST seems headed into another negative start given the new round of selling in global markets on increasing worries about the coronavirus epidemic. U.S. futures are down about 0.6% in early trades and Asian markets are all trading visibly in the red. Lira is also weaker with the USDTRY pair at 5.9674 vs 5.9563 at yesterday’s closing bell.
Macro and Political News:
(=) Erdogan: Turkey to take new stance in Syria in face of regime attacks… President Erdogan said Wednesday that Ankara’s patience regarding continuous attacks by the Al-Assad regime in northwestern Syria’s Idlib province is running out, adding that Turkey would take a new stance in the face of its interlocutors’ failure to abide by the Astana and Sochi agreements. President Erdogan told journalists on the return from visit in Africa that Russia hasn’t abided by either the Astana or Sochi agreements, underscoring his expectation that Russia will give the regime the necessary warning. The president also noted that the S-400 is a done deal and turning back from the agreement would not be an option, adding that Turkey would look for other markets or would produce its own domestically manufactured jets in case the U.S. continues dragging its feet on the F-35 issue.
(+) Economic confidence reaches 20-month high in January, soaring 23.6% annually… Confidence in the Turkish economy rose on a monthly basis to hit a 21-month high in January, according to Turkey’s statistical authority. The economic confidence index went up 0.6% compared with the last month - to 97.1 in January from 96.5 points in December. The rise in economic confidence index was driven by three sub-readings of the data, namely construction, services, retail trade and consumer confidence indices. The construction confidence index was the best performer in the month surging 14.6%. The services and retail trade confidence indexes both were up 2.2% month-on-month in January. The consumer confidence index showed a slight improvement of 0.1% compared to December. However, confidence in the real sector index slipped 2.1% during the same period. The economic confidence index surveys consumers’ and producers’ evaluations, expectations and tendencies about the general economic situation.
Confidence in the Turkish economy surged 23.6% in January compared to the same period last year and hit the highest level in the last 20 months at 97.1 points, according to data from the Turkish Statistical Institute (TurkStat). The index was measured at 96.5 points in December and 78.5 points in January 2019. The rise in the economic confidence index was driven by three sub-readings of the data, namely construction, services and retail trade consumer confidence indices.
The construction confidence index was the best performer in the month surging 14.6% and reached 78.9 points. The services and retail trade confidence indexes both were up 2.2% month-on-month in January. The former index reached 95.2 points and the latter hit 105 points – the highest level in the last two years. The consumer confidence index showed a slight improvement of 0.1% compared to December. However, confidence in the real sector index slipped 2.1% during the same period. The economic confidence index surveys consumers’ and producers’ evaluations, expectations and tendencies about the general economic situation.
The measures implemented by the economic administration have ensured a significant decrease in interest rates and inflation, and the relatively mitigated geopolitical risks have boosted confidence in Turkish assets and enabled an upward trend in the economic confidence index.
On the sectoral breakdown, the confidence index in the construction sector stands out. The fundamental reason for the high rise in the construction index is the nationwide campaigns in the property sector, the fall in the mortgage loans and increasing demand on loans. The resumption of construction on incomplete projects has become one of the developments that revived the activity in the sector. The upward momentum seems to continue in the upcoming months. The improvement in the retail and services sector and the rising confidence in the consumers’ confidence are the results of the signals for a better macroeconomic outlook. The stability in the exchange rates, predictability in inflation and the empowered investment psychology have played key role in confidence recovery.
(=/-) HSBC considering exit from Turkey... Reuters quoted on Wednesday that HSBC is considering selling its Turkey business amid concerns about the country’s volatile currency and economic outlook. While the HSBC senior management declined to comment, the Bank is said to seek to sell its banking business in Turkey if it can find a local buyer. Recall, HSBC has already shrunk its presence from some 315 branches and around 6,000 staff in 2013 to around 80 branches and 2,000 staff as of September last year, according to data from the Banks Association of Turkey. The lender previously attempted to sell its business in Turkey in 2015, Reuters reported at the time, with Dutch lender ING among the interested parties. However, the sale never went through, and the lender instead pursued branch closures and job cuts that saw it swing from a loss in 2014 and 2015 to a profit of TRY456mn in the first nine months of 2019. Despite that improved performance, the risks from currency volatility and the economic conditions have remained key reasons for HSBC to exit, according to the article on Reuters.

Sector and Company News:

(=) ENKAI bought 1mn lots of its own shares with TRY6.65-6.68 price range per share.

TRKCM, ANACM, SODA, SISE and GARAN are expected to announce their 4Q19 results today, after market close.

4Q19 Consensus 4Q19 Global Securities 4Q18 Δ between 4Q18 & Consensus
Ticker Net Sales EBITDA Earnings Net Sales EBITDA Earnings Net Sales EBITDA Earnings Net Sales EBITDA Earnings
ANACM 1.110 256 91 1.077 250 89 936 200 74 18,6% 28,2% 22,6%
TRKCM 1.721 264 155 1.691 259 153 1.661 343 188 3,6% -23,0% -17,7%
SODA 1.098 273 296 1.090 261 293 988 233 81 11,2% 17,1% 263,6%
SISE 4.801 930 478 4.735 902 483 4.467 906 251 7,5% 2,7% 90,2%

ANACM: We expect a slight increase in sales volume and most of the revenue growth is to led by pricing and sales mix. High CUR would also support profitability.

TRKCM: Operationally weak. Domestic demand of flat glass and pricing pressures in Europe continues. Higher discounts for the dealers in 4Q19 may also have a negative impact on profitability.

SODA: Operationally in-line y/y but USD-based operations boost TL financials in 4Q19

SISE: Operationally in-line y/y but net income would be boosted by F/X income. On segments, we expect weak flat glass operations although we incorporate solid packaging, soda and glassware financials for 4Q19.

GARAN: We expect GARAN to post TRY1.294bn for the 4Q19 and the consensus estimate stands at TRY1.274bn.