May 25, 2024

With the Eurozone remaining determined to preserve its integrity, strong economic data from the US and Asia support risk appetite, reducing concerns about a new bottom in economic growth.

Our views on the markets remain unchanged. Global capital will continue to shift from safe havens to risky assets, as growth continues, albeit at a lesser pace, and downside risks in the world economy diminish. We see the slight rise in the US, German and UK government bond rates as a sign of an increase in risk appetite, not that monetary policy will be tightened earlier than expected.

In our base scenario, where we predict that the US will come back from the brink of the fiscal cliff and things will gradually improve in Europe, we expect the flow of money to developing countries to continue in 2013. Investors in the USA, Japan, Germany and the UK, whose government bond yields fell to historically low levels due to quantitative expansion and financial pressure, will continue to turn to risky assets ranging from stocks to private sector bonds, from emerging market assets to commodities.

Turkey with high growth potential, strong public finances, robust banking sector, low household indebtedness and competitive private sector will continue to be one of the markets benefiting from the increase in the global risk appetite. Turkey, whose national savings are far below its investment needs, will thus provide cheaper financing for its long-term growth.

Raising Turkey to investment grade by Moody’s and/or S&P in 2013 will further accelerate capital inflows. After Fitch’s capital increase, we saw an increased interest from players in the USA and Asia who had never invested in Turkey before. A second rating increase will accelerate this trend.

Contrary to previous years, in 2013, if the main risk capital inflows in front of the economy increased too much, entering a spiral in which the foreign debt increased, the Turkish lira appreciated, and the current account deficit increased. In his speech in the past weeks, Central Bank President Başçı signaled that he is aware of this risk and that the Central Bank will intervene if capital inflows accelerate. After the President’s statement, the Turkish lira fell to the levels before the rating increase, while capital gains continued in the bond market and the stock market.

At this point, we continue to find the Turkish lira and the ISE attractive. However, we believe that the window of opportunity has closed in the government bond markets. We see that the post-tax real yield of government bonds to be purchased at current levels has declined below 1%. We propose to increase portfolio returns in 2013 by using relatively high yielding private sector bonds and stocks with high dividend yields. In the coming weeks, we will examine the investment opportunities of 2013 in more detail.

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