Turkey Wake up call: Macro, Political and Equity News, 18th March

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Wake – up call

BIST retreated 1.26% yesterday as an afternoon recovery helped ease earlier losses. Index turned quickly south after a small positive start and plunged on panic selling down to 82k around mid-day. A gradual recovery followed that boosted the market almost 6,000 points from its daily bottom until the close thanks to the Central Bank's surprise 100bps rate cut. Banks led by state lenders visibly outperformed and climbed 2.39% on average, spearheading the headline index. TCELL, MGROS, ARCLK, VESTL, and ENKAI topped the gainers of non-financials while TUPRS, FROTO, TOASO, MAVI, PGSUS, GUBRF, and KCHOL stood out among the decliners. Today, our macro agenda highlight will be President Erdogan's meeting with a group of government officials starting 2PM local time after which he is expected to announce a set of measures to provide relief to the economy and certain industries on coronavirus-related slowdown. BIST seems off to a flattish start with a negative bias as global peers are getting whipsawed while lira is a tad weaker with USDTRY at 6.44 levels vs 6.4263 at yesterday's closing bell. U.S. futures are limit down at 3.7% in reversal of the 3.2-4.1% overnight gains from the hour we left while Asian indices are mostly trading in the red.
Macro and Political News:
(=) Erdogan discussed Syria’s Idlib, refugees, coronavirus with Macron, Merkel and Johnson… President Erdogan held a video conference with French counterpart Emmanuel Macron, German Chancellor Angela Merkel and U.K. Prime Minister Boris Johnson late Tuesday. According to a statement from the Presidency, the leaders discussed the Syrian crisis, Idlib, the influx of refugees and the coronavirus threat. The video conference was chosen as the medium of communication due to the threat of coronavirus. The summit would have been held in Istanbul, if not for the pandemic.
The statement said that the four leaders discussed possible solutions for the crisis in Syria, possible ways to send humanitarian relief to the war-ravaged country’s northwestern Idlib province, the ongoing refugee movement towards Europe and possibilities for quadrilateral cooperation against the spread of the COVID-19. The Presidency also said in the statement that the leaders further discussed the ongoing civil war in Libya, the state of Turkey - European Union relations and the current situation in Europe.
(=) Turkey denies state of emergency and curfew… Fahrettin Altun, head of Turkey’s Communications Directorate, said on Tuesday that there is no truth in rumours of imposition of a state of emergency, curfew or travel restrictions in the country amid the coronavirus outbreak. Altun told state-run Anadolu Agency, highlighting that such comprehensive restrictive steps are not on Turkey’s agenda. Altun said that the measures taken against coronavirus continue in a very transparent, determined and rational manner. Altun said that the government has a responsibility to protect the health of citizens as well as their freedom.
(=) Turkey ramps up virus measures as confirmed cases reach 98… Turkey will hold an emergency meeting to be chaired by President Erdogan on March 18 (today) to coordinate the fight against the novel coronavirus. Fahrettin Altun, presidential communications director, has said that President Erdogan will head an extensive urgent coordination meeting on the fight with coronavirus. Fahrettin Altun said on Twitter that following the meeting, President Erdogan will tell the public about future steps to be taken.
Turkey announced new confirmed cases of the novel coronavirus late March 16 as it continued efforts to curb its spread. Health Minister Fahrettin Koca said 51 more people have been diagnosed with the virus, bringing the total number in Turkey to 98. He said the new cases come from contacts abroad: The U.S., Middle East and Europe and three were from among pilgrims returning from the umrah pilgrimage to Saudi Arabia. Koca noted that the importance of applying measures strictly.
Ankara also extended a flight ban to six more countries including Britain and the United Arab Emirates, bringing the total number of countries to 20. Turkey has temporarily close cafes, sports, and entertainment venues and is suspending mass prayers in mosques in an effort to contain the spread of the coronavirus. As of midnight Monday [on March 16] all operations of cafes, cinemas, gyms, swimming pools, concert and wedding venues, and some restaurants will be on hold. All activities and gatherings of non-governmental organizations will be postponed. It did not say how long the suspension would last. Meanwhile, the government urged citizens traveling from Europe to stay at their homes for a 14-day self-isolation, saying doing otherwise is an offense.
Turkey’s precautions against the novel coronavirus also extended to its military as Defense Minister Hulusi Akar announced a permanent recess for military schools. Akar also said that guests will not be allowed into military quarters or units. National and international military exercises are also suspended, Akar said, adding that temporary foreign missions are also halted until further notice. The military personnel who are currently overseas will be subjected to medical examination upon their return and will not be in contact with other personnel for a period of time, the minister added. Amid restrictions on mass gatherings due to the coronavirus outbreak, Turkey’s parliament will continue to work this week, but may consider a recess at the weekend.
(+) Falling oil prices expected to slash Turkey’s natural gas imports by over USD3bn… Plummeting oil prices are now projected to slash Turkey’s natural gas import bill by over USD3bn. Oil prices are forecast to remain below USD50 a barrel by year-end as the coronavirus pandemic chips away demand for fuel and Saudi Arabia raised output to a record in a market-share war with Russia. The scenario creates an optimistic picture for the energy import-dependent countries, while the same cannot be said for the exporting countries, which are projected to face serious revenue losses. The plunge in oil prices started last week after Saudi Arabia and Russia reached an impasse in negotiations to extend supply curbs to support the market. The decrease usually reflects on natural gas prices after about six to nine months. The effect is expected to cut current account deficits of importing countries like Turkey, which meets almost all of its natural gas needs from abroad.
A large part of Turkey’s long-term international gas contracts are oil-indexed. Simply put, contracts are being indexed to oil creates uncertainty in terms of price determination because oil prices are an issue that we cannot control. Oil fell below USD30 a barrel on Tuesday, trading close to its lowest in more than four years. Brent crude LCOc1 fell as much as 1.5% to USD29.60 a barrel but was up 0.3% at USD30.13 by 10:53 a.m. GMT, having earlier touched USD31.25. On Monday it sank to USD29.45, the lowest since January 2016. While oil has made new lows, there is simply nothing, neither a fundamental nor technical development, that implies that the rot will come to a halt any time soon.
Pointing to the decline, it would bring a 15% discount for the second quarter prices that will be effective as of April 1. The drop in oil prices will decrease Turkey’s gas import costs by up to 30% for third and fourth quarter. With oil prices following a course of below USD50 until the end of the year, Turkey’s natural gas imports will be reduced by about USD3bn to USD3.5bn.
Turkey’s long-term contracts, particularly with Russia, last until April next year. Gazprom will want to sell its gas, but the new agreements to be made must involve more flexibility. Turkey should completely free its gas trade for competition in the market to increase. Instead of long-term contracts, arrangement of contracts that reflect today’s conditions should be provided.
Note that a joint statement by the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC) Monday said that if the current coronavirus-hit oil markets remain unchanged, the oil and gas income of vulnerable developing countries is expected to fall by 50% to 85% in 2020, reaching the lowest levels in more than two decades. To remind, by March 13, crude oil prices had recorded an almost 20% weekly loss and posted the largest weekly decline in 29 years due to low demand and the risk of growing oversupply. To make matters worse, Saudi Arabia and Russia are preparing to ramp up their oil production levels in April – a move that is set to increase the glut of supply and put further pressure on prices. This also comes as the meeting of the Joint Technical Committee (JTC) of OPEC and non-OPEC countries that was scheduled to take place on March 18 was cancelled.
(+) Gasoline prices further cut back… The gasoline pump price is expected to decrease as low as 5.29 Turkish Liras per liter in Istanbul as of March 18, according to local media. The Energy Petroleum Gas Refuelling Station Employers Union announced on March 17 that the gasoline prices would be decreased 0.25 liras per liter at the end of the day. A liter of gasoline was sold for 5.54 liras per liter before the cutback. In Ankara, gasoline prices are expected to decrease from 5.69 liras per liter to 5.44 liras. Gasoline prices across Turkey were floating around 6.95 at the beginning of this month. Despite the loss of oil demand because of the global spread of the coronavirus, Saudi Arabia and Russia are embroiled in a price war instigated after failing to agree to extend supply curbs to support the market.
(+) Turkish central bank moves early with 100 basis point cut amid coronavirus… The CBRT cut its key interest rate by 100 basis points on Tuesday in an earlier-than-scheduled policy meeting and took steps to support volatile financial markets to offset the negative impact of the coronavirus. In its 7th consecutive rate cut in an aggressive easing cycle since July 2019 designed to boost economic growth, the bank cut its benchmark one-week repo rate to 9.75% from 10.75%. The bank was set to meet Thursday, but with fears of the virus mounting and cases climbing worldwide, the meeting was moved ahead. The bank’s Monetary Policy Committee (MPC) said that despite the recent slide in the Turkish lira, the sharp fall in international commodity prices combined with a broader economic slowdown will help lower Turkish inflation more than expected. Separately, the central bank Monday lowered the remuneration rate on required reserves to 6% from 8%, effective on March 20.
The Bank said that in order to contain negative effects of the coronavirus pandemic on the Turkish economy, it is of crucial importance to ensure the healthy functioning of financial markets, the credit channel and firms' cash flows. The bank unveiled measures including the provision of lira liquidity with an interest rate 150 basis points lower than the benchmark one-week repo rate, through repo auctions with maturities up to 91 days. These measures aim to boost predictability by providing banks with flexibility in the Turkish lira and foreign exchange liquidity management, offering targeted additional liquidity facilities to banks to secure uninterrupted credit flow to the corporate sector.
The bank said it would also provide banks with as much liquidity as they need through intraday and standing overnight facilities. Central banks such as the U.S. Federal Reserve and the Bank of England (BoE) have also taken urgent measures to contain the fallout from the coronavirus. Economists said the Fed’s move opens the door for Turkey’s central bank to ease policy by even more.
Recall, Treasury and Finance Minister Berat Albayrak on Monday said measures will be taken to ensure markets have access to liquidity, adding that support will be provided to all sectors of the economy beginning with those more affected.
President Erdogan is expected to announce new measures to reduce the economic impact of the virus. In this regards, the government is reportedly considering tax relief for businesses as one possible step to help the economy through a slowdown in the face of the spreading coronavirus. Adjustments to tax regulations may be on the agenda as the government decides how to help companies and small businesses especially in the export and tourism sectors seen as vulnerable, said the sources, who are aware of the planning. Some tax regulations may come on the agenda but a final decision has not been made, according to undisclosed sources. The government is expected to provide serious support to help businesses. Against this backdrop, debt repayments could also be delayed or deferred, while the regulatory authority is expected to take steps.
(+) Turkish house sales with mortgages skyrocket in first two months, surpassing 2019 first-half sales… The number of mortgage-financed house sales in Turkey in the first two months of 2020 has outperformed sales for the whole of the first half of 2019. Prompted by the central bank rate cuts since last July, house sales with mortgages hit 85,970 units in January and February, compared to 82,885 units sold in the first six months of 2019. Sales in the said category reached 43,733 last month alone, marking a 391% jump year-on-year. Overall house sales jumped by 51.4% overall, with some 118,750 houses changing hands last month, up from almost 96,000 in the same month a year earlier.
Housing sales to foreigners also recorded their best figures in February, posting a 20.6% jump compared to the same month last year at a figure of 4,500. Istanbul was the most popular location for foreign purchases, accounting for almost 2,000 units, nearly half of the sales to foreigners. The Mediterranean resort city of Antalya followed it with 805 properties, while the capital Ankara came in third with 265. Iranians made up the largest group in foreign shares according to nationality, with 721 units in February, unseating Iraqis who have led the list in recent months. Iranians were followed by Iraqis with 691 house sales, Russians with 282, Afghans with 256 and Jordanians with 141. Nearly 1.35 million housing units were sold in the country in 2019, while up to 45,500 houses were bought by foreigners, seeing a 14.7% increase compared to the previous year.
(=) Turkey’s short-term foreign debt stock reaches USD123.6bn… Turkey’s short-term external debt stock totalled USD123.6bn as of end-January. The external debt stock remained constant compared to end of last year. The currency breakdown of the debt stock composed of 48.8% U.S. dollars, 30% euro, 13.8% Turkish lira and 7.4% other currencies. Short-term external debt stock of lenders rose 1% to USD56.8bn while other sectors saw a 1% drop to USD58.4bn. The rest of the amount - some USD8.4bn - belonged to the bank. From the borrower’s side, the short-term debt of public sector, which consists of public banks, increased by 7.7% to USD23.4bn and the short-term debt of private sector decreased by 1.8% to USD91.7bn compared to the end of 2019. Short-term foreign exchange (FX) loans of the banks received from abroad went down 11.3% to USD6.9bn. FX deposits of non-residents (except banking sector) within residents’ banks decreased by 0.1% in comparison to the end of 2019 recording USD21.1bn. FX deposits of non-resident lenders recorded USD13.6bn in January, down 0.7% from end-2019. The bank also said that non-residents’ Turkish lira deposits rose 11.5%, hitting USD15.2bn in the same period.

Sector and Company News:

(=) HALKB bought 6mn lots of its own shares with TL4.92-5.00 price range per share.

(=) VAKBN bought 9.3mn lots of its own shares with TL4.42-4.59 price range per share.

ENKAI bought 387k lots of its own shares with TL5.59-5.68 price range per share.

(=) EKGYO obtained a new loan amounting TRY100mn.

(=/-) AEFES A strike decision was made at AEFES’ facilities, which will be effective from March 30, 2020; if the agreement between AEFES and Labour Union, Tek-Gıda, could not be reached. The negotiations continue between the parties.
(=) SISE, ANACM, TRKCM, SODA, DENCM announced that there is not an agenda regarding merger process at Ordinary General Assembly meetings to be held in March for each company. Merger process is to be discussed at an Extraordinary General Assembly, whose date will be determined later.

BRSA updated the duration for NPL classifications due to the payment problems caused by Covid-19 effects in economic life. Accordingly, 90 days of non-payment period for Stage I and II loans to be added to the NPL bucket extended to 180 days. Additionally ,for the loans that are currently in Stage II and non-paid in 90 days, banks will continue to be autonomous for the provision calculation methodology they use according to TFRS 9 based on their own risk structure.

CBRT declined foreign currency reserve requirement ratio by 500 bps for each type of durations only for the banks that meet commercial loan growth criteria. By this decision, the banks are expected to have USD5.1bn of excess liquidity. CBRT aims to support the banks and other economic agents that may need extra loans during the Covid-19 outbreak.