Turkey’s troubled financial markets and overseas exposure



LONDON (Reuters) – Turkey heads to the polls on Sunday to vote in parliamentary and presidential elections, and President Tayyip Erdogan is widely expected to be re-elected to an office that will be granted broad executive powers.

A general view shows the trading floor at the Borsa Istanbul in Istanbul, Turkey October 13, 2017. REUTERS / Murad Sezer

Once darling of emerging market investors, Turkey has seen its star fall dramatically into In recent years, hit increasing concerns about the accumulation of debts and the enormous influence of Erdogan on monetary policy.

These concerns have merged this year in a market defeat, with Turkish badets suffering mbadive drops and provoking a wave of criticism from the government against foreign speculators.

Below are five graphs that illustrate the recent sale and participation of foreign investors in the Turkish economy of $ 864 billion:

LA LIRA

The Turkish currency TRY = TRYTOM = D3 has collapsed 25 percent in 2018 at historic lows, the starkest sign of investor concern with the country's economic direction.

The lira's defeat only stabilized from the end of May after the central bank raised rates by a total of 500 basis points even when Erdogan advocated cutting rates to combat inflation and said it would take a greater control of monetary policy if you win the elections.

Volatility in the lira has skyrocketed and almost tripled in May, as investors bet on further declines. A measure of the expected future price swings TRY3MO = has fallen since the rise of the central bank, but remains close to double the levels at the beginning of May, suggesting that investors expect more movements in the coming months.

The lira is one of the ten best-selling currencies in the emerging market, often above its peers such as the Russian ruble and the South African rand, and operators say that volumes soared in 2018.

According to the Bank of International Payments plus recent survey of FX, of 2016, London, the largest exchange market in the world, saw almost 60 percent of daily volumes to market the lira, followed by the United States and Turkey.

In the spot market, where the flows of $ 20 billion were traded daily on average in 2016 according to the BIS, cross-border intermediaries and financial institutions accounted for more than half of the flows, while funds from coverage and private operators of approximately 14 percent

VARIABLE INCOME MARKETS

The 160-billion-dollar equity market of Turkey has had a torrid year. After heavy losses in the second quarter, the .XU100 main stock market dropped almost 20 percent in terms of liras. In dollar terms, first-line Turkish shares fell 35 percent this year, making it the worst performer among the main emerging market stock indexes followed by Reuters.

Foreign investors, who hold about 64 percent of Turkey's shares according to the World Bank, have withdrawn money from Turkish stocks for four consecutive months, according to the cash flow data from the Institute of International Finance.

While 64 percent of foreign ownership is about eight percentage points less than a decade ago, it is still well above the levels in pairs like South Africa, where foreign ownership amounted to less than 40 percent at the end of 2016, according to the country's finance ministry.

BOND MARKETS

Unlike other major emerging market pairs, the local Turkish bond market is dominated by local players: just over 20 percent of the 575 billion lire ($ 121 billion) in Outstanding public debt securities are held by foreigners.

This compares to about one third of Russian OFZ bonds held by overseas investors, and more than 40 percent of South African national bonds.

However, despite two increases in emergency rates to stop the currency falling, Turkish bond markets still offer a relatively low premium in the context of rampant inflation.

While the Turkish government has relatively low levels of debt to GDP compared to some of its peers, investors have become increasingly nervous about the hard currency debts of Turkish companies.

The increasing pressure of the weakened lira has pushed the borrowing costs paid by a trio of leading Turkish banks to record levels.

And not only the financial firms have found themselves in the line of fire. According to McKinsey, corporate debt in Turkey is one of the highest among developing countries in terms of dollars and as a percentage of GDP, and has been growing at an annual average of 28 percent since 2007.

DIRECT FOREIGN INVESTMENT AND LOANS ABROAD [19659007] Foreign direct investment in Turkey has fallen sharply from a peak of nearly $ 18 billion in 2015 to around $ 11 billion in 2017, according to the UN's Trade and Development Agency. UNCTAD.

Accounting for more than a quarter of total inflows to the West Asia region from 2007-2015, Turkey saw FDI fall substantially after a failed coup in July 2016.

"Political instability has had a negative impact on the Turkish economy and on FDI, "UNCTAD found in its annual report.

Turkey's private sector has accumulated huge debts denominated in foreign currency: in total, the economy has a dollar debt estimated at $ 200 billion, one of the largest as a percentage of GDP for any emerging market country.

The fall of the lira has made the service of these debts more expensive, encouraging companies to try and refinance their loans.

Turkish banks have a debt of $ 56.5 billion dollars compared to only $ 2.1 billion of debt denominated in liras, according to BIS data.

GRAPH: Turkish cash flows reut.rs/2MFe7Z6

GRAPH: Turkey Equity Markets reut.rs/2K3XAMJ

GRAPH: Real yields of emerging markets reut.rs/2M74xND

GRAPH: Corporate debt of Turkey reut. rs / 2M5I1EJ

GRAPHIC: Turkish lira against the US dollar reut.rs/2McKjlp

Reports and graphics by Karin Strohecker and Tommy Wilkes Graphics by Ritvik Carvalho; Additional reports by Riham Alkousaa; Editing by Peter Graff

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