Turkey Wake up call: Macro, Political and Equity News, 23rd March

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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 0.70% on Friday but ended the week with a cumulative loss of 10.26% as the virus related concerns continued to rattle global markets. Index opened gap higher on Friday and climbed to 88k levels before mid-day, but the gains fizzled out along with U.S. futures and European peers until the close. Banks underperformed with the 1.07% drop in their sector index amid some selling in heavyweights AKBNK and GARAN. BIMAS, KCHOL, TTRAK, and TRKCM were among the few decliners among non-financials while TCELL, TTKOM, GUBRF, FROTO, MPARK, MGROS, BIZIM, and SOKM closed the day with decent gains. Today, our local macro agenda involves March'20 Consumer Confidence Index compiled by TurkStat due 10AM local. The index had retreated 2.7% on a sequential basis to a 4-month low of 57.3 in February. Turkey’s death toll from coronavirus increased by nine to 30 on Sunday as the number of confirmed cases rose by 289 to 1,256, Health Minister Koca said. The government decided to impose a curfew for elderly above 65 years of age and for those with chronic diseases over the weekend. BIST is off to a gap lower start given the agony returning to global markets and the weakness in lira (USDTRY now at 6.5671 vs 6.5338 at Friday's closing bell). U.S. futures are limit down at -4.4% on top of the 5.5-6.1% losses suffered after the hour we left on Friday. Asian markets are all trading deep in the red except for some gains in Japanese benchmarks that returned from Friday's holiday.
Macro and Political News:
(-) Coronavirus death toll rises to 30 in Turkey, 1236 confirmed cases… The death toll in Turkey due to coronavirus rose to 30. The number of confirmed cases in the country has surged since the first case was announced last week, reaching 1236 on March 22. The Ministry of Health said that 20,345 tests had been conducted since the beginnig, 289 of which came back positive in the last 24 hours. The minister also urged the elderly to abide by the recent partial curfew imposed by the interior ministry.
(+) Over-65 COVID-19 curfew has exceptions… Turkey Sunday gave new details, including exceptions, of a curfew for people 65 or older or people with chronic illnesses. The Interior Ministry released a statement that vital public officials and pharmacists will be exempt from the restrictions. Doctors, healthcare professionals, mayors, provincial directors, social service officers and other required public officials will continue to work so long as they do not face any serious health conditions such as cancer. The statement also added that coordination centers have been set up in all provinces and districts in the country for the essential needs of needy and indigent people.
Recall, under the measures announce late Saturday, Turkish citizens who are older than 65 and/or suffer from chronic illnesses are restricted from leaving home or walking in open areas such as parks and gardens. Groups will be established to support people not allowed to go out to meet their needs under the coordination of governors and district governors.
(+) President Erdogan urges people to stay home, ensures food supply amid coronavirus outbreak… President Erdogan called on citizens to stay at home and practice social distancing as the health minister announced 12 new deaths from the new coronavirus. Speaking in a video released on early Sunday, President Erdogan said all government offices are working at full capacity to overcome the crisis. He urged people to follow instructions released by the authorities and to stay at home. The president said the government has taken necessary steps to ensure adequate food supply and urged people not to panic over individuals attempting to launch a negative campaign. He stressed that the state has taken all the necessary precautions and that there is no shortage of any product, medical products.
(+) Virus crisis offers Turkey chance to reposition in global supply chain… German-Turkish Chamber of Commerce and Industry (AHK) Secretary-General and board member Thilo Pahl said that emerging problems in the supply chain around the world following the outbreak of the new coronavirus could provide an advantage for Turkey in the long term once the crisis is over. In an interview with the state run Anadolu Agency, Pahl said that in the long run, this virus crisis offers a great opportunity to reposition Turkey in the global supply chain. Pahl pointed out that the effect of the coronavirus on the international economy is already huge, while extraordinary circumstances can offer unexpected opportunities for sectors that can quickly increase the capacity of their economy or operate below capacity. He said automotive suppliers and the textile industry are among the sectors that come to mind first, through which Turkey can reposition itself in the global supply chain.
Recall, the emergence of the coronavirus late last year in China has already pushed various firms toward searching for new markets and production centers since the East Asian country took steps such as closing down factories and locking down cities to curb the spread of the virus. However, the pandemic has already spread worldwide, and Europe is now officially the virus’s epicentre, giving further ambiguous signals on the future of world trade and the global economy.
Pahl noted that although it is difficult to predict the extent of the problem to be experienced in the supply chain from the coronavirus effect. Pahl further highlighted that Turkey has a geostrategic position that stands out with a growing and freely spending population, adding that Turkey remains an attractive market and investment target for German small- and medium-sized enterprises (SMEs). Pahl said many German SMEs are aware of the attractive Turkish market but expect regional uncertainties for further investment, highlighting that the Turkish economy offers many opportunities in the medium and long term. He further stressed that Germany remains one of the leading allies of Turkey, based on its long-standing relationship and USD33bn in trade volume with Turkey in 2019. Pahl underlined that especially in the automotive and machinery sectors, the availability of the necessary factors, like a qualified workforce, and low production costs attract investment in Turkey.
(=) Turkey rules out rumours about troop withdrawal from Idlib… The Defense Ministry announced that the planned deployment and distribution of troops in Idlib’s de-escalation zone of northwestern Syria will continue and there will be no withdrawals of troops from the region. The ministry said that all decisions adopted under the Moscow deal are being implemented with the utmost care. The statement further noted that the Turkish Armed Forces is continuing planned deployment and distribution of troops in the Idlib de-escalation zone of northwestern Syria, in line with the cease-fire of March 6. The ministry stressed that reports by some media organizations about withdrawals of our troops from the region do not reflect the truth.
(-) Unemployment rate in Turkey rises to 13.7% in 2019… Turkey’s unemployment rate reached 13.7% in 2019 with a 2.7 percentage point rise from the year before. According to the Turkish Statistical Institute (TurkStat), the number of unemployed ages 15 and over in Turkey reached 4.4 million last year – a rise of 932,000 compared to 2018. The country’s total labour force, in the meantime, reached 32.55 million, with an increase of 275,000, while the labour participation rate was at 53%, a 0.2% year-on-year decline. The non-agricultural unemployment rate stood at 16.0% in 2019, with a 3.1% rise. The unemployment rate for the 15-24 age group was at 25.4% with 5.1% point increase. The employment rate in this age group was at 33.1% with a 1.9 percentage point decrease. The figure for people between the ages of 15 and 64 increased by 2.8% to reach 14.0%.
(=) Central government gross debt stock at USD225.8bn… The gross debt stock of Turkey’s central government stood at TRY1.4tln (around USD225.8bn) as of Feb. 29. The figure was 25% up from the corresponding period last year. The gross debt stock includes the outstanding debt of public sector institutions, the Central Bank, private companies, and households. Some 48% of the debt stock is denominated in local currency, while the rest is in foreign currency. Nearly TRY786bn (USD126bn) or 55.8% of the debt was domestic and TRY623.5bn (USD96.9bn) were external. The stock of Treasury receivables stood at TRY17.8bn (USD2.85bn) at the end of February.
(+) Turkey sees 37% rise in new companies… The number of newly established companies in Turkey soared 37% on an annual basis in February. According to the organization, some 9,150 companies were set up last month, up from almost 6,700 in February 2019. The figures showed that 824 companies went out of business in February, marking a 32% rise compared to the same month of last year. A total of 1,142 foreign-partnered or foreign-funded new companies were launched in the month. In the first two months of the year, more than 19,600 new companies started doing business in Turkey, with a 31% annual increase. The number of foreign-partnered or foreign-funded new companies exceeded 2,200 in January-February.

Sector and Company News:

(-) THYAO grounding all international flights, except to five destinations as of March 27… Turkish Airlines will ground all its international flights as of March 27, except those to Hong Kong, Moscow, Ethiopia, New York and Washington, D.C., amid changing dynamics in the sector due to the impact of the new coronavirus outbreak. Mr Ilker Ayici, the chairman of Turkey’s flag carrier, said over the weekend that the airline is maintaining flights between those five destinations to further enable transfer flights worldwide, adding that the carrier is unable to use 85% of its capacity, since Turkey has already halted flights to and from various countries in a bid to stem the spread of the virus. Due to those precautions, the airline cannot conduct flights to 107 countries. Note that Turkey has suspended flights with more than 60 countries. Also, he said that the company will give a 15% bonus to those who postpone their tickets instead of returning, and 1,000 bonus miles will be given for every 10 euros of the ticket price. Speaking on the company’s overall policy regarding employees, Ayici said Turkish Airlines has no intention of laying anyone off.

(=) TAVHL bought 156k lots of its own shares with TL15.21 per share. By this transaction, TAVHL bought 1.24mn lots of its own shares from TRY16.12 average price in total since March 13.

(=) EKGYO BoD announced a share buyback program amounting TRY1.00bn or up to 251.6mn lots of shares in order to protect its shareholders’ investments. Upon this decision, EKGYO bought 10.5mn lots of its own shares with TL1.11-1.12 price range per share on last Friday.

ENKAI bought 500k lots of its own shares with TL5.69-5.75 price range per share. By this transaction, ENKAI bought 8mn lots of its own shares from TRY6.24 average price in total since February 25.

The Banks Association of Turkey announced a recommendation for banks regarding limiting the working hours five hours per day from 12:00 - 17:00 in the branches that face many of the bank’s customers on a daily basis. Additionally, the banks were advised to take necessary precautions for social distancing in the branch and closing down the branches which are located in overcrowded occasions. However, the Banks Association of Turkey’s decisions are not binding as it is not a governmental body. The banks will be autonomous to follow aforementioned precautions.

(=) ISCTR declared to comply with the the Banks’ Association of Turkey’s advice for shortening of working hours from 12:00-17:00 due to Covid-19 outbreak prevention.

(=) OTKAR will pay out TL8.33 DPS today. Reference price: TL102.47.

(=) FROTO will pay out TL3.12 DPS today. Reference price: TL43.56.

(-) TTRAK is to halt production for two weeks starting from March 23 at Ankara and Erenler Factories due to disruptions in the supply chain from European countries.

(=/-) DOAS According to the news in the press, Tuvturk’s (DOAS’ equity pick-up) operations may be suspended because of the curfew of citizens over 65 years and the fact that many people are in contact with each other at these stations.

(=/+) MGROS According to the news, Migros will make 1,000 new hires in 2 weeks for its online platform, Migros Sanal Market.

(=/-) TOASO will continue production at its Bursa factory but will apply the '1.5 meter social distance' rule on production lines and reduce production speed




Research Director
Burak Salman


5

Analysts
Filiz Ozcan Mehmet Mumcu Omer Camli Ekimhan Can





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