Doing Business in Turkey

Economic Analysis Reports

Capital Markets - Monthly Analysis

Title: Monthly AT-A Glance
Date: August 2010
Author: AtaInvest
Length: 19 Pages
Format: Adobe Acrobat (*.pdf)
Intro: “2Q results generally good, but now watch the referendum”

Markets reacted favorably to the Fed’s FOMC meeting announcement that it would begin “reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities”. This is considered ‘QE light’ by some US economists, and we agree with this view. However, the FED scared the markets with prospects of a double dip. If there is one, equity markets seems overvalued, although the situation would be supportive of global rates. Given this global backdrop, and considering that the bulk of the earnings season is over, and that a public referendum is approaching, there is not much left to keep up positive sentiment in the markets.

As part of our 2010 strategy, and on the back of the global developments, we recommend our investors to stay on the side lines in the short term. We anticipate a complex and volatile correction in the markets that is likely to last into late 3Q/early 4Q, before resuming the cyclical bull market.

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Title: Monthly AT-A Glance
Date: July 2010
Author: AtaInvest
Length: 17 Pages
Format: Adobe Acrobat (*.pdf)
Intro: “Politics in the driving seat”

Markets remain unstressed with high growth, low inflation and rising foreign
inflows, despite stress tests in the Euro zone….

The stress tests of EU banks and pensions time-bombs have failed to stress the
Turkish economy, which has recovered quickly along with a few other EMs,
reinforcing our long-held view that EMs will lead the way in global recovery.

Turkey should remain secular, market driven, and a natural ally of neighbors
both East and West in order to stay engaged with the world’s power houses. This
offers considerable hope for the future of the economy, as well as the markets.

The performance of the ISE has long been driven by global developments, and
Turkey has been one of the major outperformers in the MSCI emerging markets
universe, period, thanks to its relatively strong positioning throughout the crisis,
and its weathering of the impact of global issues. We believe that external
developments will remain effective, although these factors will be accompanied
by domestic politics as we enter into a referendum period.

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Title: Monthly AT-A Glance
Date: June 2010
Author: AtaInvest
Length: 20 Pages
Format: Adobe Acrobat (*.pdf)
Intro: “Trade on the volatility, or stay away till the dust settles”

We issued a sell call on April 28, 2010 entitled “Yes, it is a tactical sell”. And since then, the ISE-100 index has declined from 58,000 to 52,000 levels on May 25, 2010, by 12%. We think that this was a first leg down, and dependent on developments in the currency markets, the FED’s rate decision and the outcome of the G20 meeting in late June. We advise bargain hunters to await the second leg of the downturn before buying, and we're not quite there yet.

The global risk aversion has resulted in a US$ 422 bn outflow from the ISE, led by the banking stocks, and marked the largest outflow since February 2009. We expect the risk aversion to continue during June on further outflows, regardless of Turkey’s relatively good fundamentals. Yet, the outflow in June may not be as high as it was in May as we rarely see large scale outflows lasting for two consecutive months.

Panic reaction may create some trading opportunities and even good entry levels for long-term investments, and thus we recommend investors to remain on the sidelines in search of good opportunities. Our pick list for the month is once again a mixture of more defensive names and attractively-valued stocks. 

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Title: Monthly AT-A Glance
Date: May 2010
Author: AtaInvest
Length: 21 Pages
Format: Adobe Acrobat (*.pdf)
Intro: “Double icing on the cake OR a hopeful mirage in a desert?”

We expect the EU bailout package, combined with strong Turkish growth dynamics to reflect on 1Q results, leaving the ISE feel adventurous, and helping Turkish yields ease back towards 9-9.20% levels, while the Lira is likely to regain lost ground.

So, we are positive on the markets in the near term with the spillover effects of the EU bailout package and strong IP growth in 1Q. The EU bailout package is positive for equities, and will result in a quick dip in yields. And yet the impact is likely to fade in the longer term as more liquidity is likely to increase inflationary worries further, which in turn would, of course, pressure yields. Hence, we expect market volatility to decrease in the upcoming weeks, but increase in M/T.

Our portfolio recommendation for the month is once again a combination of defensive and cyclical names, as better-than-expected GDP growth and strong 1Q10 earnings estimates are expected to shift interest to more cyclical stocks in the short term. Our recommended portfolio consists of; Akcansa , Anadolu Hayat , Ak Enerji , Aygaz , BIM , Is Bank , Sinpas REIC , Turkish Airlines , Tekfen Holding , Turk Telekom.

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Title: Monthly AT-A Glance
Date: April 2010
Author: AtaInvest
Length: 19 Pages
Format: Adobe Acrobat (*.pdf)
Intro: “The continued sound of records breaking…”

A non-friendly Mea Culpa?...Turkey has been hit hard by global recession, contracting by 4.7% in 2009, while unemployment levels hit an all-time-high of 16%. Yet Turkey has weathered the worst of the global recession, and is likely to approach pre-crisis growth levels in 2010. Indeed, the Turkish economy signaled the end of the recession in 4Q, registering a handsome 6% growth.

Given the fact that a handful of countries are raising rates, while others set aside monetary tightening for 3Q10, or are still pushing for a stimulus to support growth, we maintain our initial view that the CBT is unlikely to shift policy until early 2H10. We expect a rate hike totaling 150 bps in the second half of this year.

We stick to the annual strategy outlined in our annual report and remain positive on the Turkish bourse with our 5% growth outlook without IMF funding. Despite the strong performance of the stock market (up by 16% since the beginning of March, by 13% since year-end), Turkish equities are likely to test new highs in April. We believe that the CBT tightening is likely to put a temporary cap on the market’s strong performance in 2H10.

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Title: Monthly AT-A Glance
Date: March 2010
Author: AtaInvest
Length: 19 Pages
Format: Adobe Acrobat (*.pdf)
Intro: “Never Mind the Short term Bullocks...”

Despite current developments on the political front and rising diplomatic tension in US-Turkish relations we make no changes to our annual strategy at this point in time.

USD/TL ended the year at around 1.50 levels and currently trades at 1.54. We think 1.55 (with IMF funding) and 1.65 (without IMF funding) is the ceiling for the USD/TL at end-2010. In the short term, the Lira is likely to appreciate towards 1.50 levels.

Benchmark bond yields ended the year at around 9% levels and are currently at 9.12%, remaining flat during the first two months of the year. For the rest of the year, we stick to our initial view and expect yields to rise to 11% (without IMF funding) and to10% (with IMF funding) as the CBT is likely to keep policy rates on hold in 1H10, and start rate hikes in mid-year for a total of 100-150 bps in 2H10.

ISE-100 remained flat during the first two months of the year (year-end at 52,825, currently at 52,600 levels). We expect the ISE to correct when and if the possibility of early elections rises, or global liquidity flows dry up.

We believe that ISE companies are in good shape in terms of corporate leverage and balance sheet resistance, as they have done well in weathering the negative effects of the global crisis thus far. However, we maintain our cautious stance on the market in the short term and recommend investors to stick with the top picks. 

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Title: Monthly AT-A Glance
Date: February 2010
Author: AtaInvest
Length: 22 Pages
Format: Adobe Acrobat (*.pdf)
Intro: “Global markets point the way…” 

Year of the Tiger for EMEA? European leaders have reached a deal to provide
aid to Greece, and yet the lack of a concrete deal with funding is not likely to
keep the markets satisfied. There are no major signs of stress on the Turkish
economy due to the current crisis in Greece. On the international trade channel,
the link between the two countries is just not that strong. Hence Greece’s
adverse effect on the Turkish economy should be limited.

Premature tightening, how likely? The Turkish rate decision might attract
some attention, but the CBT is likely to keep its policy rate stable at 6.50%.
Given that inflation in January surprised on the upside, rising by 1.9% (or over
8% annually), climbing above the CBT’s year-end inflation target of 6.5% y/y, the
CBT is likely to restart monetary tightening in 2H10 to keep inflation in check.

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Title: Monthly AT-A Glance
Date: January 2010
Author: AtaInvest
Length: 20 Pages
Format: Adobe Acrobat (*.pdf)
Intro: “ISE starts 2010 in the fast lane…”

Markets: Can Turkey avoid asset bubbles?
During January, the ISE is likely to test new highs with expectations of an IMF agreement and re-rating of Turkey by S&P following the Fitch and Moody’s upgrades. Yields are likely to stabilize at around 8% levels in January on the benchmark bond with IMF expectations and the re-rating of Turkey by rating agencies. Policy rates are expected to stabilize at current levels in 1H10 before the CBT starts to hike policy rates by 100-150 bps in 2H10. As a result, rates on the benchmark bond are likely to test 8% levels in 1H10 before rising to 10% levels by year-end. In the longer term, we are quite bullish on the markets.
The only issue is that we've had such a huge rally since mid-March, and therefore worry about a pullback towards the end of 1H10 with higher political risks and rising US$ in international markets.

Which Sectors in 2010?
• Low interest rates should help the real estate market
• Building materials & autos will also benefit from low interest rates,
but perhaps with a lag
• Privatization & M&As to revive again
• Positive medium term growth outlook for banks, but NIM
compression is inevitable in the short term. Participation banks will
have a relative advantage in
• Fertilizer sector is expected to improve operational profit

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Title: Monthly AT-A Glance
Date: December 2009
Author: AtaInvest
Length: 20 Pages
Format: Adobe Acrobat (*.pdf)
Intro: Closing the year with a successful ride in Turkish markets…

The recent data flow including growth, IP and capacity utilization signals that the Turkish economy is in a recovery stage, but that the recovery is likely to be gradual. Given the global backdrop, we expect Turkish markets to outperform in the long run. In the short run, rising risks in the EU arena may trigger a correction in EUR/USD parity in our view. If such correction takes place, it will in turn have an impact on the USD/TL parity as well. Given the rising exchange rate risks, we expect Turkish markets to remain sensitive to exchange rate volatilities in the short run, and stabilize later during the year. Hence, the ride may be bumpy in the short run with rising exchange rate risks, and EU banking sector problems, but in the longer term we expect the Turkish market to continue to outperform its peers with strength in the banking sector and gradual economic recovery.

ISE set to post a strong closing for the year…
Just as other markets all around the world, the ISE started the year in very negative mood. Since March however, it has been one of the best performing EMs. The ISE-100
has returned 82% ytd, but remains 20% below its previous peak and still trades at a 2010 PE multiple of 10.5X, which is a 22% discount to peer countries’ average. Despite the intimidating effect of an 82% ytd return, we expect the market to rise further towards the end of the year, and it may be early 2010 before it faces substantial profit taking.

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Title: Monthly AT-A Glance
Date: November 2009
Author: AtaInvest
Length: 21 Pages
Format: Adobe Acrobat (*.pdf)
Intro: “Take some profits on the table before pullback”

Stocks: Global risk aversion may dominate... Since March 2009, ISE is in an
uptrend in line with our expectations. The strategy of buying on dips in
March paid off handsomely, up 102%. In our view, now is the time for
correction with gradually rising interest rates as the CBT’s cutting cycle nears
to an end while oil prices are in a rising trend.

Bonds: Rising tensions in the bond market but no major selloff is likely…
It seems that the lack of an IMF program and foreign interest combined with
tight liquidity conditions are beginning to take their toll on the bond market.
Although we do not expect a major sell-off in Treasuries despite the risk/
reward ratio favoring higher yields in the future, we expect Central Bank to
exit from the cutting cycle following a 25 bps cut in November meeting.

Lira: No shocking US$ buying is expected...EM stock positioning built on
short US$ positions is our main focus and possible US$ strengthening may
result in global short US$ squeeze in our view. Although we do not expect a
shocking US$ buying, we expect a gradual strengthening of US$ and we
think it is time to take profits for the reversal in the markets with shifts in risk
aversion.

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Title: Monthly AT-A Glance
Date: October 2009
Author: AtaInvest
Length: 18 Pages
Format: Adobe Acrobat (*.pdf)
Intro: 3Q09 earnings season to kick off

We believe the worst of the bad news is out of the way in Turkey. Monthly production and trade data are not deteriorating at the kind of pace seen earlier this year and importantly, base effects will be considerably more favorable by 4Q09. The once-large external financing gap has now narrowed considerably and Turkey maintained her FX reserves during the worst times of the crisis. Between September 08th and October 19th, Ata Research Index returned 36% in absolute terms outperforming the benchmark ISE-100 by some 21.3%. This brought the YtD performance to 169%, 43.8% over the benchmark.

Turkey is not likely to sign a new stand by agreement with IMF. However, likely to use Flexible Credit Line when and if necessary. For year end 09, we expect modest depreciation of Lira towards 1.50-1.56 range. For 4Q09, ISE is likely to normalize with some corrections before edging up for new highs. We see more way to go on the easing cycle and expect a floor in the policy rate at 6.0%. With inflation continuing to edge down and a significant output gap now evident, we do not see rate hikes before the 3Q of 2010.

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Title: Monthly AT-A Glance
Date: September 2009
Author: AtaInvest
Length: 21 Pages
Format: Adobe Acrobat (*.pdf)
Intro: Profit taking while waiting for IMF & G-20

G20, IMF and mid-term economic program to lead the way in 2H09...The G-20 is back on economists’ agenda, as the global crisis shows more signs of healing - but worries over the sustainability of the recovery continue. Finance ministers from the G-20 and central bank governors met in London on September 4-5 ahead of the G-20 economic summit in Pittsburg, Pennsylvania. In contrast with the March meeting and April summits, September’s meeting will be crucial when it comes down to laying down the specific and effective measures to prevent the current crisis from worsening.

A new structural reform based IMF agreement or a Midterm Fiscal Program?... A new structural reform based IMF agreement would include fiscal measures to prevent any further deterioration in public finances. Therefore, a structural reform based IMF agreement would restrict transfers to municipalities, curbing public spending while implementing tax reforms through independent revenue administration in a bid to improve public revenues.

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Title: Monthly AT-A Glance
Date: August 2009
Author: AtaInvest
Length: 22 Pages
Format: Adobe Acrobat (*.pdf)
Intro: Momentum may fade after earnings announcements...

ISE is among the best performers globally benefiting from the return of global liquidity and the return of confidence in the EM markets since mid March, following the G20 meeting. Longer term, we are bullish, with Turkey’s growth prospects and rising geo-economic importance as a new energy hub in the region. However, we think after a strong 90% rally, the momentum may fade and the short term sensitivity to negative domestic data may increase.

We revised our inflation, currency and interest rate estimates for the year-end 2009 and onwards after the CBT announcement. Incorporating the new assumptions into our models marked upward revision of 10% on non-financials and 25% on banks 2009 earnings estimates and carried the earnings growth of 2009 up from the previous -1% to 8%. The average 2009E PE of the market came down from 11.5X to around 10.3X after the revisions. After a long period of higher yields on bonds, for the first time in Turkey’s history, the earnings yields and bond yields have converged.

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Title: Monthly AT-A Glance
Date: July 2009
Author: AtaInvest
Length: 19 Pages
Format: Adobe Acrobat (*.pdf)
Intro: What is it going to be... Relief at Long Last?

Positive news flow on the IMF deal is likely to support sentiment at ISE in July. As per Ministry of Finance, Mr. Simsek, government is negotiating for a three-year economic program with the IMF. We stick to our view that government will keep IMF on the side as a last resort of funding.

We maintain our view that the CBT will cut its policy rate by 25 bps on that meeting. Although we think this will be the end of the cutting cycle as the inflation is likely to stabilize around 5.8%, we do not dismiss the possibility of another 25 bps cut in August if inflation reading allows scope for easing.

We have repeatedly suggested positioning at ISE since mid-March. We see further upside at ISE with positive sentiment in global markets led by better than expected Q1 09 financial results at US markets.

We believe that investors are in search for undervalued companies and have started to take their positions accordingly. As we enter into the summer period we expect the movement on the ISE to continue on selective basis where expectations regarding 2Q financials would play a role in taking positions. To begin with Turk Telekom < TTKOM TI> is set to report its 2Q09 results on July 20th which we expect banks and Turkcell < TCELL TI> in August.

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Title: Monthly AT-A Glance
Date: June 2009
Author: AtaInvest
Length: 22 Pages
Format: Adobe Acrobat (*.pdf)
Intro: Further switch to non-financials on selective basis…

We continue to be positive for ISE in the longer term with the new sectoral incentive package, the credit guarantee fund, strong banking sector results, and the bottom-out in economic activity. However, we expect corrections in the equity market with some profit taking in the banking sector stocks and repositioning of funds with renewed fears regarding the Eastern European markets. We favored equities since mid March and continue to prefer equities in the long term. But we recommend investors to wait before repositioning in equities until the direction of the global interest rates have been clarified by the FED.

In our view, the ISE is likely to outperform as long as activity in the real economy continues to improve. Such an improvement is likely to depend on the CBT’s ability to keep policy rates under control. On the other hand, an IMF deal is not likely any time soon. In a recent public statement, the IMF seemed concerned about funding of the new stimulus package and short term employment incentive program.

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Title: Monthly AT-A Glance
Date: May 2009
Author: AtaInvest
Length: 22 Pages
Format: Adobe Acrobat (*.pdf)
Intro: Is The Recent Rally Overdone?

In our view, current rise in equities was not a bear market rally. Although short term profit taking is on the cards, we believe ISE is at the early stages of its mid-term recovery with increased global liquidity, rising risk appetite, and signs of bottoming in global and domestic economic activity. We continue to favor exposure to Turkish equities despite the possibility of some pullbacks in upcoming months.

Macro Expectations...In accord with our inflation forecast, which we revised from 6.5% to 6%, CBT is likely to continue its cutting cycle at a slower pace and reduce policy rates further by 100-125 bps during the next two months keep it flat for the following few months. This backdrop calls for major strategy implication since the period of curve steepening is mostly over. Yield curve has steepened significantly over the course of the cutting cycle. 

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Title: Monthly AT-A Glance
Date: April 2009
Author: AtaInvest
Length: 17 Pages
Format: Adobe Acrobat (*.pdf)
Intro: G-20 & The IMF Boost to Equities

In line with our expectations, ISE strengthened by some 20%, since
March 19, while Lira gained 8% against the US$ and the rates on
benchmark bond declined from 14.07% levels to 12.82%. For the
remainder of the month month, we expect Lira to continue to remain strong
against the US$ with a changed risk profile of Turkey following the G20
summit in early in the month. Weaker US$ in international markets is likely to
continue to support Lira as well.

Following the decision to increase IMF funding in G20 summit, a new flexible
credit line will be offered to countries that are about to sign a new deal with
IMF. Turkey is likely to benefit from IMF’s new facilities through flexible debt
repayments and expanded credit options.

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Title: Monthly AT-A Glance
Date: March 2009
Author: AtaInvest
Length: 11 Pages
Format: Adobe Acrobat (*.pdf)
Intro: Turkish Economy in a Flat World:

Global weakening took its toll on Turkey as the production
fell by 21% YoY while capacity utilization rate remained
at record lows of 64% in February reading. Sharp decline in
exports around 30% and deterioration in domestic demand
were the main reasons behind the sharp decline in production
and capacity utilization. Subsequently, Turkey risks
sharper contraction in growth as evident with recent data.
Growth data for Q4 08 is not released yet; we expect 5.5%
contraction in the last quarter, bringing the annual growth
rate to 1% in 2008. First quarter GDP print is likely to read at
a negative 5.8%. We will provide a detailed study on the
growth prospects for the next 4 years soon.

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Title: Monthly AT-A Glance
Date: February 2009
Author: AtaInvest
Length: 7 Pages
Format: Adobe Acrobat (*.pdf)
Intro: New stress test in Turkish Markets:

Rising risks in Euro area and impact on Turkey:
Eastern Europe including Turkey continues to remain susceptible
to financial crisis in February. Unlike some other emerging
markets, Eastern European markets remain dependent on
external financing and run considerable size of current account
deficits. So, a possible sharp drop in capital inflows to
Eastern European countries will threaten economic growth
that has already took a hit in Q4 08. Although Turkey remains
relatively stable, recent negative news flow in European banks
may trigger a domino effect to stress test the emerging economies
in the region.

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Title: Monthly AT-A Glance
Date: January 2009
Author: AtaInvest
Length: 7 Pages
Format: Adobe Acrobat (*.pdf)
Intro: 2009 Key Themes:

Turkish Macro View: Downturn may be nasty but it is temporary.

· H1 is nasty with global outlook. But rebound is in the picture for H2 with cheaper Lira and improved domestic and external demand.
· The inflationary scare of last year becomes the disinflationary reality of 2009, benefiting from sharp decline in oil prices as well as slowdown in global demand.
· Unconventional times require unconventional measures: CBT joins to the global rate cutting club.
· Crisis!! Not so bad from a CAD’s point of view as it is likely to decline substantially, but what about the other side of the coin, the capital account? How bad is the roll over risks of corporate Turkey?
· IMF to the rescue the fiscal discipline again…
Key Risk Factors: External liabilities of corporate Turkey and availability of global liquidity
· External liabilities of corporate Turkey, impact of Euro zone slowdown on exports and banks’ dependence on foreign borrowing as well as geopolitics are the major risk factors in 2009.

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