International Investors’ Focus Shifts Towards Turkiye with Improving Economic Outlook

While the uncertainties regarding the Turkish economy are decreasing with the steps taken by the economic management and the continued commitment to the Medium Term Program (MTP) targets, the interest in Turkish lira (TL) assets is also increasing.

The economic policies that the economic management has been pursuing for about a year are slowly bearing fruit.

While some international credit rating agencies have recently increased Turkiye’s credit rating, the interest in TL assets continues to increase. While this situation positively affects Turkiye’s risk premium, the improvement in funding costs is also noticeable.

Making evaluations about the demand for TL assets, Minister of Treasury and Finance Mehmet Simsek stated that the increasing confidence and predictability in the Turkish economy also positively affects the provision of external financing. “While there was a net portfolio outflow of $2.9 billion in the first 5 months of 2023, there was a net portfolio inflow of $16.8 billion in the period June 2023-February 2024.”

Positive signals for Turkish economy continue to come from credit rating agencies

Standard & Poor’s (S&P) increased Turkiye’s credit rating from “B” to “B+” last week. In its assessment, S&P stated that it is thought that the coordination between monetary, fiscal and income policies will improve with the effect of external balancing following the local elections in Turkiye, and that portfolio inflows are expected to increase, the current account deficit will narrow, and a decrease in inflation and dollarization is expected in the next 2 years.

At the beginning of March, Fitch Ratings raised Turkiye’s credit rating from “B” to “B+” and increased its rating outlook from “stable” to “positive”.

While Moody’s confirmed Turkiye’s credit rating as “B3” at the beginning of this year, it changed the rating outlook from “stable” to “positive”.

Analysts predicted that if a permanent slowdown in inflation can be achieved in the coming period and the current account deficit decreases, Moody’s may receive a rating increase in its evaluation of Turkiye on July 19.

BIST 100 index continues to break records

Meanwhile, the BIST 100 index in Borsa Istanbul continues to break records.

BIST 100 index started the new day with an increase, after achieving a record closing on a daily basis yesterday, and reached the highest level of 10,383.25 points. Thus, the BIST 100 index, which has increased by approximately 38% since the beginning of the year, is one of the best performing indices in the world.

BIST 100 index, which offers a significant return to its investors when examined on a dollar basis, is currently at the peak of the last 5 years with 320 points. The dollar-based return of the index indicates an increase of 26% since the beginning of the year.

In addition to the positive evaluations made by S&P, according to the weekly securities statistics announced in the week of April 26, the government securities stock of non-residents increased from $2 billion 508.6 million to $3 billion 114.6 million, indicating the strongest purchase since the week of December 8.

Thus, the GDDS stock of non-residents reached its highest level as of February 18, 2022.

The improvement in the balance of payments continues

The determination to establish disinflation is noteworthy in the steps taken by the economic management. On a monthly basis in April, the Consumer Price Index (CPI) increased by 3.18% and D-PPI increased by 3.60%, which was within the expectations.

On the other hand, the positive effect of the ongoing increase in the country’s foreign trade data as well as tourism revenues on the current account balance continues. In the first 2 months of this year, exports increased by approximately $4 billion compared to the same period of the previous year, reaching $40.5 billion, while imports decreased by approximately $11 billion, falling to $49.7 billion.

According to tourism statistics for the January-March period of this year, Turkiye’s tourism revenue increased by 5.4% compared to the same quarter of the previous year. In the said period, tourism revenues were recorded as $8 billion 784 million 800 thousand.

Thus, while the balance of payments had a deficit of $5.8 billion in the first 2 months of the year, the improvement in the current account deficit compared to the same period of the previous year was approximately $14 billion. The annualized current account deficit stood at 31.8 billion in February. In February 2023, the annualized current account deficit stood at $56.4 billion.

Source: AA / Prepared by Irem Yildiz

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