Last Updated on January 30, 2024 by Aydoğan Aknar
Turkey’s Economic Renaissance from JP Morgans Perspective
In a recent investor meeting hosted by JP Morgan, Stefan Weiler, the Head of Central & Eastern Europe, Middle East, and Africa (CEEMEA) debt capital markets, shed light on the growing interest from the global investor community in Turkey. The shift in sentiment is attributed to significant changes in macroeconomic policies and a notable transformation in market perception towards the country. Let’s have an in-depth look at Turkey’s economic Renaissance from JP Morgans perspective and the outlook for the economic future and government policies.
Since the appointment of a new economic team post-elections last May, there has been a discernible shift in the outlook for Turkish assets among investors, asset managers, and analysts. This positive sentiment is linked to Turkey’s move towards conventional monetary and fiscal policies, which has contributed to an overall improvement in market confidence.
Weiler highlighted the substantial changes in market sentiment since the elections, with the economic team instilling credibility in the policy adjustments. Despite Turkey currently holding a B rating from major agencies, there is optimism and anticipation of potential upgrades, with the market already pricing in improvements comparable to a BB credit rating.
Turkey’s Credit Rating
Credit rating agencies such as Fitch, S&P Global, and Moody’s have revised their outlooks for Turkey to positive, citing a decisive change in economic policy, particularly a return to orthodox monetary policies.
Weiler emphasized the potential for upgrades this year, although the investment return may take time. He discussed the positive impact of economic policy changes during the investor meeting, where Turkish officials outlined the impact and future expectations.
While acknowledging a tide shift with a significant portion of the investor community re-engaging with Turkey, Weiler noted that not all investors are back, with some exercising caution until they observe more time pass.
Weiler suggested that the Central Bank of the Republic of Turkey (CBRT) should continue guiding the market, possibly through continued interest rate increases to combat inflation. Despite expectations of an interest rate hike, Weiler suggested that the market may feel close to its peak.
Optimism about Turkey’s issuance was expressed by Weiler, forecasting a record year in total issuances, including corporate and government bonds. He anticipated surpassing the previous record of $20 billion, with a personal view of expecting $25 billion or more in issuances this year.
Navigating Challenges and Projecting Growth
Weiler noted the progress in achieving a positive real rate return, contributing to increased inflows into the local curve. Major investment firms like Vanguard and Pimco have re-engaged with Turkey’s bond market following the shift in macroeconomic policies.
Apart from these major investment firms, Weiler mentioned that other prominent investors have also started showing interest in Turkey. The CBRT’s implementation of a substantial 650-basis-point hike in June, marking the first such move in 27 months, played a pivotal role in renewing investor interest.
Since then, the CBRT has continued its aggressive policy, raising the policy rate by a total of 3,400 basis points to reach 42.5%. The central bank’s commitment to combating inflation and maintaining a positive real rate return has resonated positively with investors.
Weiler acknowledged Turkey’s economic challenges, such as inflation above 60% and interest rates at 42.5%. However, he emphasized the positive trajectory in addressing these challenges and expressed confidence in Turkey’s ability to attract more inflows into its local curve.
The upcoming interest rate decision by the CBRT was a point of discussion, with economists estimating a potential 250-basis-point hike to 45%. Weiler noted that while the market anticipates further hikes, there is a general sentiment that the peak might be approaching.
Weiler concluded the interview by painting an optimistic picture of Turkey’s economic outlook, expecting a record year in terms of issuances and a continued re-engagement of the investor community. Despite existing challenges, the decisive changes in economic policy and the commitment to fiscal discipline have set the stage for Turkey’s potential return to investment-grade status in the foreseeable future.