Turkey Wake up call: Macro, Political and Equity News, 12th March

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

Turkish stocks, like their peers everywhere, got whipsawed on news related to the coronavirus outbreak and the BIST100 index moved in a wide 4,000-point range between 98.8-102.8k yesterday, only to close with a 0.10% drop. Banks again outperformed with the 0.55% climb in their sector index thanks to the strength in GARAN for the second day along with some help from YKBNK this time while AKBNK and HALKB were weaker. Retailers like MGROS, BIMAS, SOKM, and BIZIM as well as medical/sanitary products suppliers, foodstuff companies and hospitals were having their day in the sun, most of them recording double-digit gains. TCELL was also a bright spot while KCHOL, ENJSA, THYAO, PGSUS, TKFEN, EKGYO, TUPRS, and Sisecam stocks were among those that came under heavy selling pressure. Today, global markets are waking up to another rough day as the virus panic escalates with new travel restrictions including those between the U.S. and Europe. Local macro agenda is muted and remains rather irrelevant for the markets anyways. BIST is off to a gap negative start and will keep an eye an global peers for a sense of direction during the day. Lira is slipping to 6.2205 in early trades vs 6.1972 at yesterday’s closing bell. U.S. futures are down 3.4% this morning on top of the 1.4-2.0% overnight declines from the hour we left and Asian markets are all trading deep in the red.
Macro and Political News:
(-) Trump bans all flights from Europe to US for 30 days; Turkey and UK exempt… Taking dramatic action, President Donald Trump announced Wednesday he is sharply restricting passenger travel from 26 European nations to the U.S. and moving to ease the economic cost of a viral pandemic that is roiling global financial markets and disrupting the daily lives of Americans. Trump said that the month-long restriction on travel would begin late Friday, at midnight. After days of playing down the coronavirus threat, he blamed Europe for not acting quickly enough to address the “foreign virus” and claimed that U.S. clusters were “seeded” by European travellers.
While Trump said all European travel would be cut off, Homeland Security officials later clarified that the new travel restrictions would apply only to most foreign nationals who have been in the "Schengen Area" at any point for 14 days prior to their scheduled arrival to the United States. The countries that will be affected are Schengen Area nations including Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, the Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and Switzerland, according to the Department of Homeland Security. As Turkey is not among Schengen countries, it will be unaffected. Also, Trump said the restrictions won’t apply to the United Kingdom, and there would be exemptions for “Americans who have undergone appropriate screenings”. He said the U.S. would monitor the situation to determine if travel could be reopened earlier.
(=) Erdogan: Turkey strives to ensure permanent cease-fire in Syria’s Idlib… President Erdogan told the parliamentary group meeting of the Justice and Development (AK) Party in Ankara. Erdogan said that Turkey is striving to ensure a permanent cease-fire in and expects Russia to address violations in Syria’s northwestern Idlib province, and will not hesitate to carry out further military operations in the area if promises are not kept. Erdogan highlighted that if the Syrian regime and Russia fail to keep their promises of a cease-fire, Turkey will not hesitate to take the necessary steps against them, adding that the security of Turkish observation points in the region is Turkey’s biggest priority. Also, Erdogan noted that Turkey aims to make the temporary cease-fire in Syria’s Idlib permanent and will not avoid further military operations in the area if the cease-fire pledge is not kept. Erdogan highlighted that Ankara will continue to genuinely support all efforts that aim to ensure safety, security and stability in northwestern Syria, as he said Turkey accepted to implement a cease-fire in the area not because it cannot fight the Assad regime and terrorists, but because the country wants to find a solution to the Idlib crisis.
The president also said Turkey would keep the border open for migrants trying to reach Europe until the European Union fulfils all pledges such as visa-free transportation, updating of the customs union and financial assistance. Meanwhile, Erdogan criticized the bloc for remaining indifferent to Greece’s inhumane treatment of the migrants. Warning that the migrant influx will not be limited to Greece, Erdogan said it would spread throughout the Mediterranean.
(=) Defense Minister: Talks with Russia on joint patrols, cease-fire in north-western Syria “positive”… Defense Minister Hulusi Akar on Wednesday called the ongoing talks in Ankara with Russian officials on conducting joint patrols and upholding the existing cease-fire in northwestern Syria positive and constructive. Saying that efforts within the framework of the recent deal were continuing, the minister said that up until now, the situation has been calm. Akar added that Turkey has fulfilled all kinds of obligations and will from now on continue to stick by its promises, while the same is expected from the Russian side.
On the second day of the talks, both sides will discuss in detail what can be done within the scope of the recently reached deal. The minister further indicated that bilateral contact continues and reminded that he had a phone call with his Russian counterpart Sergey Shoygu. Both ministers exchanged views on ways to achieve a permanent cease-fire among conflict parties in Idlib, according to the Turkish National Defense Ministry on Tuesday. The fulfilment of obligations under the agreements and continuation of efforts to maintain peace and stability in the region were also emphasized during the conversation, according to the ministry.
(=) Turkey’s current account gap at USD1.8bn in January… The Turkish economy ran a current account deficit of USD1.8bn in January, below the median of analysts’ forecasts of USD2.4bn. The gap widened USD1.5bn compared to the same month of last year, bringing the 12-month trailing surplus to USD6.5bn.The gap was mainly driven by nearly USD2bn year-on-year rise in good deficit which recorded net outflow of USD3.2bn in January. The net inflow at the services item rose USD78mn to USD1.6bn. Also note that travel item under services recorded a net inflow of USD1.1bn, increasing by USD112mn compared to the same month of last year. Last but not the least, the CBRT bank made revisions for previous years in line with foreign trade statistics disseminated by TurkStat. In tandem, current account deficit decreased by USD8.4bn in 2013, USD6.1bn in 2014, USD5.0bn in 2015, USD4.7bn in 2016, USD6.0bn in 2017, USD7.5bn in 2018 and current account surplus rose by USD6.3bn in 2019.
(+) Lower oil prices could wipe USD12bn from Turkey’s energy import bill… Since this week's oil shock struck global markets hard on Monday, pushing crude oil prices to sink to their lowest level in four years, the annual average price per barrel is expected to come out at around USD35-USD45. Should this be the case, Turkey’s energy import bill might be slashed by some USD12bn, while also bringing inflation down by as much as 1%. The standoff between Riyadh and Moscow, both of whom have promised to raise oil output following the collapse in last week’s talks between the Saudi-led OPEC and a Russian-led group of non-OPEC oil-producing countries, is set to extend an output cut to stabilize the coronavirus-hit market.
Soon after, Saudi Arabia, in an aggressive move, said it would slash its official selling prices and ramp up production, triggering an all-out price war. The clash sparked a more than 25% slump in oil prices on Monday, triggering panic selling and heavy losses across global markets. Coupled with a lull in oil demand in light of the coronavirus, international benchmark Brent saw the value slump as low as USD31.3 per barrel on Monday, while American benchmark West Texas Intermediate saw barrels decrease to as little as USD27.3.
Brent was trading at about USD36 on Tuesday, off this week’s low of about USD31 but 45% lower than at the start of the year. The crash has also brought up questions over the course oil prices will take throughout this year, especially for producers and energy-dependent countries. The failed OPEC+ meeting will result in a production surplus of 2.1 million barrels per day in the global oil market as of April, creating a supply-sided pressure on prices. The oil market has already been grappling with the spreading coronavirus. The impact has dramatically lowered global demand for oil. Now, pressure appears to be growing on oil prices in terms of both supply and demand.
Due to the decline in crude prices, Turkey’s gasoline prices decreased by TRY0.6 and diesel prices by TRY0.55 from midnight Tuesday onward. Note that oil prices averaged USD65 per barrel in 2019. If they average USD45 a barrel in 2020, which is USD20 a barrel lower than the previous year, Turkey’s energy import bill will fall by USD12bn this year compared to 2019 when it was over USD40bn. Under the assumption that Turkey’s GDP would be 5% this year, the hypothesis is that every USD10 a barrel decline in crude prices would shrink the current account deficit by USD4-4.5b. Hence, a USD20-per-barrel decline in oil prices would lower the current account deficit by USD7.5-8bn. Also, inflation should decline by 0.5 to 1 basis point in 2020 due to low oil prices. The current situation will bring down inflation by approximately 1% if oil prices stay at around USD35 per barrel, according to our estimates.

Sector and Company News:

(=) THYAO posted 4.97mn passenger traffic for February 2020, down by 4.0% YoY. During this period, domestic passengers carried were down by 13.9% YoY, while international pax were up by 3.7% YoY. Load factor, on the other hand, was down by 230bps, reaching 77.5%, with 270bps and 210bps lower respectively in domestic and international load factor. Cargo/Mail carried in February increased by 13.0% YoY to 128,430 tons. We see slight slowdown in the international pax and domestic pax continued to be weaker, yet overall results indicates only limited impact from virus on pax in February numbers

ENKAI bought 500k lots of its own shares with TL5.74-5.80 price range per share.

AKGRT announced that BoD’s proposal for TRY0.66 dividend per share was approved by the general assembly on Wednesday. The ex-dividend date is March 13, 2020.