Second-half expectations not optimistic

Expectations related to Turkey’s economy for the second half of the year are not as positive as they were in the first half. While it has become more difficult to attain the first half’s performance in production and employment, a course that will unfold depending on developments in the global economy seems inevitable.

Market players draw attention to the highness of the rates of return of stocks and bonds in the first half, arguing that it would be very difficult to reach these rates in the second half. For this reason, in those market reports prepared for investors, the saturation in Turkey in the rate of return is highlighted, cautioning care from now on.   

The first half of 2014 was positive in terms of risky assets; in both stocks and bonds markets, the return was positive. While developed country stock markets increased 5 percent in the first six months, the return in developing countries was 4.8 percent. However, returns in emerging bonds and bills markets exceeded 9 percent. In Turkish markets, the rising trend increased after March 30 elections.

While the Istanbul Stock Exchange BIST 100 index increased 15.8 percent in the first half of 2014, the average return in the bonds and bills market reached 12.6 percent.

There; it appears very difficult that the rates of return will reach these levels in the second half of the year. Not only in Turkey, but in all developing countries, it is difficult to catch these returns.

Because of recent positive production and employment data coming from the United States, it is now a matter of conversation that there is a possibility that the FED will increase interest rates sooner. While the markets are not expecting any interest rate hikes before mid-2015, now this expectation has come closer to the first quarter of the year.

These developments closely concern developing countries in particular, ourselves included. If the expectation of the FED’s interest rate hike for the first quarter of next year intensifies, then the markets will start buying it before this year ends. In that case, a serious shrinkage may happen sooner with short-term capital movements.

If these pessimistic scenarios come true, then at the end of the year, serious increases in foreign exchange rates and serious falls in growth and employment may be experienced. This in turn might mean serious losses in the stocks and bonds markets.

Despite this bad scenario, if the expectation continues that interest rate increases in the United States start in mid-2015, then this year may pass accident-free.

High inflation rate

However, even if the year passes accident-free and even if the bad scenario does not happen, from the point of investors, it will again be very difficult in the stocks and bonds markets in Turkey to reach the rates of return for the first half.

The most important incident particular to Turkey is the presidential elections to be held in August. Even if these elections have an outcome similar to the expectations of the markets, problems will not end for returns. Market players express that in stocks markets, the second half may pass positively but in interest rates, it would be impossible to reach the rates of return of the first half.  

The most important cause of this, though, is the high course in the inflation rate. Therefore, it seems that interest rate decreases will now be difficult and will be too inevitable for rates of return to drop.