WOOD Flash – Turkey macro: positive fiscal and business developments

The recent data on public sector fiscal execution confirm that Turkey is on track to achieve a “modest” (given what has become standard during COVID-19 times) budget deficit, and holds a high cash buffer in local currency and FX. This suggests that 2021E will also see contained shortfall and comfortable financing prospects, in our view. In the real economy, the FX mismatch in the non-financial corporate sector is stable in the short term, falling in the aggregate. High dynamism in the business sector, in terms of demographics and the consolidation of the balance sheet, has led to an improvement of our assessment of the potential growth of Turkey. Overall, we flag that the extremely low positioning of non-residents to Turkish assets, but an improving macroeconomic backdrop signal an opportunity to rebuild exposure, notwithstanding the likely 5-7% depreciation potential against the USD in the coming months.