Investors are piling into Turkish assets as the country’s reform program bears tentative fruit

Turkey is getting accolades for its economic policy turnaround: Turkish President Recep Tayyip Erdogan turned heads last month with news that Turkey has returned a USD 5 bn central bank deposit to Saudi Arabia, a vote of confidence in the country’s economy. This came shortly after Moody’s raised Turkey’s credit rating two notches from B3 to B1 — its first raise in over a decade.

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Investors have already taken note: Far from the emerging market menace of yore, Turkey has become the belle of the ball, with nearly USD 30 bn being channeled from abroad into Turkish stocks and bonds since May 2023, Bloomberg reports. There has been a 6.3% rise in TRY-denominated bonds in the same period — far outstripping the average of 1.1% in similar emerging markets — and the Borsa Istanbul100 stock index has been among the best performing in the world.

Turkey’s ascent to emerging market darling was not always in the cards: Decades of unorthodox monetary policy saw the Turkish central bank cut interest rates in the face of double-digit inflation and engage in market-confounding about-faces on policy that prompted foreign investors to run for the hills. Central bank attempts to challenge Erdogan’s unconventional economic views by raising interest rates saw offending technocrats fired and replaced by more pliable alternatives.

What’s changed? Most observers mark the June 2023 appointment of former economy chief Mehmet Simsek as treasury and finance minister as the inflection point that set the country on its current trajectory. Within nine months of his appointment, Simsek and new leadership at the central bank had hiked interest rates a whopping 41.5 percentage points, from 8.5% in June 2023 to 50% in March 2024. The timing of Simsek’s appointment was no accident either, coming one month after tight presidential elections saw Erdogan squeak his way into a third term.

Despite apparent commitment to reform, those in the know suggest taking the turnaround with a pinch of salt. Observers caution that the policy shift is still in its early days, with significant room for a reversal should electoral exigencies come into play. The country also continues to see inflation rates above 70%, with the fruits of newly-appointed Fatih Karahan ’s punishingly tight monetary policy yet to fully materialize.

MARKETS THIS MORNING-

Major Asian benchmarks are in the red this morning, which CNBC blames on investors adopting a wait-and-see approach as they wait for key trade data from China and Taiwan and interest rate decisions from the central banks of Australia and India due later this week. Japan’s Nikkei is down almost 6% at dispatch time — inching closer to bear territory, after falling near 20% since its high recorded on 11 July — the Kospi is down almost 5%, and the Hang Seng fell close to 1%.

Meanwhile, US stock futures fell last night after a particularly volatile week that pushed the Nasdaq into correction — it fell over 10% since 11 July.

THE CLOSING BELL-

The EGX30 fell 2.9% at yesterday’s close on turnover of EGP 3.2 bn (13.9% below the 90-day average). Foreign investors were net buyers. The index is up 14.5% YTD.

In the green: Faisal Islamic Bank of Egypt -USD (+0.5%).

In the red: E-finance (-8.0%), Egypt Kuwait Holding -EGP (-6.8%), and Emaar Misr (-6.7%).