by SignalFactory · September 18, 2020 | 13:02:32 UTC
Turkey Bank Stocks Sink to Record Discount Amid Foreign Exit
Turkish bank stocks, hardest hit by a selloff of Istanbul equities from foreigners, are trading at a record discount to local industrial sectors. Only a combination of interest-rate rises and changes to government policy could shake them out of their slump, market participants said.
An index of major local banks has slid 32% this year, while the Borsa Istanbul Industrials Index has gained 17%. The lenders are trading at a 61% discount, based on estimated 12-month earnings, the widest gap since at least 2006.
Bank stocks are typically favored among foreign investors, partly because of their relatively high liquidity. That means they have felt the worst of the $5.6 billion in net outflows of Istanbul stocks by non-residents so far in 2020, on track to make this a record year for redemptions from foreign investors.
Turkish banks may be profitable and remain well-capitalized, but a 21% slide in the lira and concerns about policies that prioritize economic growth above all else, pushing record credit stimulus, have deterred foreign institutions.
“Historically, bank shares usually show a relative recovery after the adoption of orthodox monetary policies that bring inflation and the exchange rate under control with adequate interest rate hikes,” said Cagdas Dogan, a banking analyst at BGC Partners Securities in Istanbul.
The lira weakened to a fresh all-time low of 7.5438 against the dollar on Thursday.
Toygun Onaran, managing director of Istanbul money manager Oyak Portfoy, said he doesn’t expect a change in direction for banking stocks unless the government adjusts regulations to support the sector. Non-banking companies have a higher correlation to a recovery in the global economy that makes them more appealing, said Onaran.
Banks also failed to get support from this year’s saviors of the Turkish equity market — mom and pop investors looking for returns better than the meager interest on bank deposits. They have preferred the less-liquid shares of small- and medium-sized companies that are more likely to deliver a quick profit.
The fortunes of Turkish lenders are also more closely tied to central bank foreign-currency reserve levels than in other developing countries, according to Mathieu Racheter, an emerging-market strategist at Bank Julius Baer in Zurich.
“Higher reserves come hand-in-hand with an external funding surplus, which takes off the pressure on the lira and the central bank can lower interest rates,” Racheter said. “As a result, net interest margin expands, and the cost of risk decreases, which improves the profitability of Turkish banks.”
Turkey’s foreign currency reserves, excluding gold, dropped to $44.9 billion, central bank data showed as of Sept. 4. Gross reserves were at $87.5 billion in the same week, down from $106.3 billion at the end of 2019.
The nation has spent its foreign-currency holdings faster than any other major developing economy this year. With foreign-exchange reserves dwindling to near a 15-year low, Turkey needs either higher interest rates or bullish sentiment that would spur foreign capital inflows. The central bank has cut its key lending rate by a total of 1,575 basis points since it started easing in July 2019, keeping it at 8.25% since May.
“Should the policymakers take a step regarding the policy rate and abandon forced pro-growth regulations on the asset ratio and required reserves, there’s room for recovery” in banking shares, said Dogan, the BGC analyst.
All information on this website is of a general nature. The information is not adapted to conditions that are specific to your person or entity. The information provided can not be considered as personal, professional or legal advice or investment advice to the user.
Signal Factory is not represented as a registered investment consultant or brokerage dealer nor offers to buy or sell any of the financial instruments mentioned in the service offered.
While Signal Factory believes that the content provided is accurate, there are no explicit or implied warranties of accuracy. The information provided is believed to be reliable; Signal Factory does not guarantee the accuracy or completeness of the information provided. Third parties refer to Signal Factory to provide technology and information if a third party fails, and then there is a risk that the information may be delayed or not delivered at all.
All information and comments contained on this website, including but not limited to, opinions, analyzes, news, prices, research, and general, do not constitute investment advice or an invitation to buy or sell any type of instrument. Signal Factory assumes no responsibility for any loss or damage that may result, directly or indirectly, from the use or dependence on such information.
All information contained on this web site is a personal opinion or belief of the author. None of these data is a recommendation or financial advice in any sense, also within the meaning of any commercial act or law. Writers, publishers and affiliates of Signal Factory are not responsible for your trading in any way.
The information and opinions contained in the site are provided for information only and for educational reasons, should never be considered as direct or indirect advice to open a trading account and / or invest money in Forex trading with any Forex company . Signal Factory assumes no responsibility for any decisions taken by the user to create a merchant account with any of the brokers listed on this website. Anyone who decides to set up a merchant account or use the services, free of charge or paid, to any of the Forex companies mentioned on this website, bears full responsibility for their actions.
Any institution that offers a service and is listed on this website, including forex brokers, financial companies and other institutions, is present only for informational purposes. All ratings, ratings, banners, reviews, or other information found for any of the above-mentioned institutions are provided in a strictly objective manner and according to the best possible reflection of the materials on the official website of the company.
Forex trading is potentially high risk and may not be suitable for all investors. The high level of leverage can work both for and against merchants. Before each Forex investment, you should carefully consider your goals, past experience and risk level. The opinions and data contained on this site should not be considered as suggestions or advice for the sale or purchase of currency or other instruments. Past results do not show or guarantee future results.
Neither Signal Factory nor its affiliates ensure the accuracy of the content provided on this Site. You explicitly agree that viewing, visiting or using this website is at your own risk.