Citi, BofA analysts upbeat on Turkish markets

ISTANBUL

In recent reports from Citi and Bank of America (BofA), analysts have offered upbeat assessments of the Turkish economy and local markets.

The Turkish markets are on the verge of a “renaissance moment,” said Citi, adding that the authorities’ shift toward policy normalization has galvanized investor interest in Turkish assets.

The Central Bank is on the right policy path and monetary policy may stay relatively tight for longer than is currently priced in by markets, wrote Citi analysts in a report.

On May 23, the Central Bank kept its main policy rate unchanged at 50 percent.

All ratings agencies are reflecting the policy normalization and fundamental improvements, they said, adding that there is likely to be some upside pressure from the upcoming rating reviews.

“As we near a moment of better stabilization in domestic CPI [consumer price index] further stability in USD/TRY spot is poised to drive down forward implied yields,” they said.

BofA noted that since the local elections, domestic FX demand reversed, and banks told BofA analysts that they are seeing retail and corporates on the selling side.

“Retail unwinding of KKMs [FX-protected deposits accounts] accelerated and some corporates are borrowing in FX rather than the Turkish Lira.”

The de-dollarization trend could continue during the summer if the lira stability continues, according to the report.

Meanwhile, Fitch said that the recent surge in debt issuance by Turkish banks suggests that international investors have regained confidence in the sector since Türkiye’s adoption of more conventional macroeconomic policies after last year’s election.

“The improvement in market access reinforces our expectations at the start of 2024 of lower near-term refinancing risks for Turkish banks,” it said.

In March, Fitch upgraded Türkiye's Long-Term Foreign-Currency Issuer Default Rating to “B+'” from “B” with positive outlook.