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Wednesday, Feb 28, 2024

Foreign investors test Turkey's waters after years in the cold

Foreign investors test Turkey's waters after years in the cold

Scores of foreign investors are returning to Istanbul and Ankara after years in the cold for a flurry of meetings to understand whether Turkish elections could bring a tidal change for its economy and financial markets.
According to several investors and bankers involved, large foreign lenders including BBVA (BBVA.MC) and BNP Paribas (BNPP.PA) organised trips and calls for clients to meet current Turkish policymakers and opposition officials and advisers.

President Tayyip Erdogan's unorthodox policy approach, including aggressive rate cuts in the face of soaring inflation, left the economy and markets heavily state-managed and spurred an exodus of foreign investors over the last five years.

But after two decades in power, Erdogan and his ruling alliance are trailing in some polls ahead of the May 14 vote behind an opposition that has pledged to ditch his policies and return to orthodoxy in running the big emerging market economy.

Adding to pressure, the economic cost of the devastating earthquakes that struck Turkey’s south on Feb. 6 is estimated to be around $100 billion.

The investor visits and conference calls have ramped up in recent weeks and will continue through April, garnering far more interest than in years past including before the COVID-19 pandemic halted much travel, the sources said.

One person familiar with the plans said a trip next week organised by Spanish lender BBVA includes clients representing some $1.5 trillion in debt-related assets across emerging markets.

"There is a jumbo-sized interest rate hike potentially coming in a relatively short period" if the opposition wins, the person said. Investors seek to understand "who will win, who will hold key positions and what the programme will be".

BBVA, majority owner of Turkey's Garanti Bank (GARAN.IS), declined to comment. French lender BNP, a big stakeholder in local lender TEB, said it would host its meetings next month.

'STAR' AMONG PEERS?

It is not only trips into Turkey either.

Officials from the country's Treasury and Environment and Energy ministries have been in Europe's financial capital London in recent days speaking to money managers about the earthquakes and new "sustainable" bonds.

Viktor Szabo, a portfolio manager at Abrdn who attended one the meetings, said the plans for the bonds seemed almost fully formed, meaning the government might even try and sell them ahead of the election.

Analysts say Turkey needs to borrow another $5 billion this year. Getting a large chunk money via a sustainable bond sale is a hope although an additional, standard-style dollar-denominated bond or a sukuk could make up any shortfall.

Turkey's repeated bouts of currency turmoil have seen many international funds sell their lira-dominated government bonds. The foreign-owned share of that market now stands at less than 1% compared to more than 25% five years ago, government data show.

While some analysts expect that an opposition victory in the presidential and parliamentary vote would bring a sharp rally in the lira currency, others expect more uncertainty given that monetary tightening could slow economic growth.

Complicating any transition is the need to address the more than 100 financial regulations adopted since the latest currency crash in late 2021, and the expected overhaul of personnel at the central bank, regulators and ministries, analysts say.

Wall Street bank Citi said it held two days of meetings in Istanbul earlier this month for its bond and equity investors. "The mood is hopeful for positive change" even as the atmosphere is "tense" over the vote outcome, it wrote afterward.

Another person familiar with an array of planned meetings said not only Western but Gulf-based investors are making inquiries about potential foreign direct investments, or FDI, rather than just financial assets.

A Western foreign investor who will visit Turkey soon said the group plans to listen to the opposition as much as possible but also meet central bank policymakers.

"It may be a good opportunity to rethink Turkey's currently significant 'underweight' positioning among peer markets," the investor said. "If there will be a star among emerging markets this year, it will be Turkey."

The central bank declined to comment on any such meetings.
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