CBRT Monetary Policy Committee kept the policy rate unchanged at 14%, in line with consensus. We argue that the disconnect between the policy rate and inflation is so great that the market does not take MPC decisions into consideration anymore and other factors such as the direction of the CA deficit and the trend in FX protected deposit have become more important to gauge Lira’s stability. With no anchor from the monetary policy, CĞI is likely to remain over 50% throughout the year, given the pressure from commodity prices and the potential lira weakness will be unwanted icing on the cake. Current dynamics show us we will finish the year between 40-45% headline inflation.
Foreign investors sold USD290m of equities and USD121mn bonds last week and total outflows from equities & bonds have reached USD2.1bn year-to-date, while outflows from swaps(carry-trade positions) reached USD5.2bn year-to-date. Despite continuous selling by foreign investors, equities have remained resilient as Turkish investors attitude have dramatically changed since 2018 and they have become investors rather than just day traders. The decline in foreign investors share in the free float from 65% in 2018 to currently 38% is a big sign for it. There is big selling especially in banks since the Ukrainian war started that would normally lead to a big correction but it has not happened. Since Feb 22, foreign investors have sold 5% of the free float in Akbank and the stock is flat.
We expect commodity linked names to remain strong, Tupras on the back of a rebound in oil and strong margins and steel makers on the back of a news that EU might increase Turkish producers export quotas in the absence of Russian producers.
*DOHOL TI: announced that they are planning folding box board production investment which will have a capacity of 500,000 tones capacity