Summertime sadness

“Sell in May, go away,” they say to describe the mood in financial circles. The logic behind it is simple. Investors hate to take any important political and/or financial decisions in the summer, so they should nicely sell off their portfolios and take a vacation. This theory is not limited to emerging economies, but also for the New York Stock Exchange and the FTSE as well.

So think of it. Imagine you are a tech company investing in Turkey. All of a sudden, the bureaucrat you are constantly in touch with in Ankara over licensing issues, permits or even for simple regulatory changes, is not there anymore. Not only him, but hundreds of others are gone too. Overnight. Sounds like a coup?

This seems to be happening day and night in Ankara these days. A high level manager in a media company recently told me the following: “The top level bureaucrats of Türksat that we deal with have almost all been bulldozed. The relationships that were built over the course of a decade under Justice and Development Party [AK Party] rule have been wiped out. I don’t know what we are going to do.”

Prime Minister Recep Tayyip Erdoğan’s clear orders to clean the state of Fetullah Gulen sympathizers have turned into big investigation euphoria in Ankara, which some may even call a “witch hunt.” The removal of Mursel Ali Kaplan, the head of the financial crimes investigation unit (MASAK) is the latest example of how high the “cleaning up” has gone. Three months ago, a source inside Turkey’s National Intelligence Agency (MİT) told me that there would be operations and investigations focused on financial institutions. “We don’t know whether they are faithful to the state, to the AKP, or to somebody else. What if they belong to the parallel state as well? We cannot afford to keep any of them where they are,” he said.

Under the new MİT law, the agency can ask for any information about any commercial enterprise, and if you do not provide it, you can be jailed. The government can take over your house, your car or even your company overnight. There are also rumors on the street that the AK Party (or the prime minister himself) will push for a regulation that would put a “party commissioner” on the board of every publicly traded company in the Istanbul Stock Exchange. There is already a draft ready on a legal change about agriculture unions and associations, which will open up space on their boards for “government appointed” people.

 All of this comes amid heavy pressure on the Turkish Central Bank to cut rates. Central Bank Governor Erdem Başçı said on Wednesday that the Bank predicted the year-end inflation rate to be 7.6 percent, therefore 1 percent higher than previously predicted. He said the Bank may therefore consider a gradual cut in interest rates. The governor obviously sees the threat of a hard landing on the growth side and higher inflation. The only silver lining in this picture may be the decline in credit card debt and the current account deficit.

But former market player Nasrullah Ayan warns that personal borrowing in Turkey has already reached alarming levels. “Every single citizen in Turkey has a debt of around 3,000 Turkish Liras and this is the highest in the history of the country. To lower rates for giant projects so that they can borrow from state-controlled banks simply won’t work. We saw this in the last crisis,” he told me.

So, with this picture in mind and with presidential elections on the horizon, it’s no wonder that financial experts are putting Turkey back in the “fragile five.” And yes, the theory works: “Sell in May, go away.”