Strategist optimistic Turkey will retain credit note

By Gokhan Kurtaran

LONDON

Moody’s and Fitch are expected to adopt a wait-and-see stance after coup attempt in Turkey, contrary to Standard & Poor’s (S&P) immediate downgrade of the country’s credit note, a senior economic strategist said on Friday.

Nomura International Senior Strategist Timothy Ash said that given many positive macro-economic data, Turkey should retain its investment grade ratings from Fitch and Moody’s amid speculation that they may cut ratings to junk level after the coup bid.

“My personal view is willingness to pay, proven track record of paying suggest that Turkey should be in investment grade given also its ratios, particularly low public sector GDP, low budget deficit, low share of external debt public sector debt. That’s really important” he said.

“I don’t think there has been, so far, a significant change in the objective pricing criteria, ratios. There is no deterioration since they moved to investment grade two-to-three years ago. I think both Moody’s and Fitch would adopt 'wait and see',” he added.

Ash believes this wait-and-see stance will also give Turkey’s government time to introduce counter measures, noting that the unexpected rating decision from S&P was rather surprising:

“I think S&P’s decision was surprising because already S&P is cautious and negative on Turkey. It already had junk bond rating anyway, which is well below Moody’s and Fitch.”

“Moody’s announcement on Monday was understandable. This was a major event and they decided to put the ratings on review. It’s investment grade,” Ash said.

Ash added that Fitch and Moody’s put less weight on institutional strength and put more weight on objective considerations like ratios; public sector debt/GDP, fiscal deficit positions and the banking sector.

“For me, I think the credit rating of a country should be based on the number of years you paid. Especially the number of years when you were under stress,” he noted.

Beside the fact that Turkey has repeatedly proven itself with macroeconomic strength in difficult times, Ash said he was surprised by the some international news channels portraying the July 15 plot as a battle between the ruling Justice and Development (AK) Party and secular Turks, given that all opposition parties defied the coup.

“Prime Minister [Binali] Yildirim came out and offered his thanks to the CHP and MHP [opposition parties] and the mainstream opposition for supporting the government against the coup,” Ash said.

“The perception from the international media is something different. It’s like the old stereotype of AKP [AK Party] vs. secular elite. It’s not like that.

“All of the population rallied behind the government against this anti-democratic action. So, there were some positives from the developments,” Ash added.

With almost all Turkish citizens and opposition defying the coup attempt, the outcome could be a good story to give foreign investors confidence in Turkey, Ash said.

“If they sell a consistent story, a market-friendly story, I think investors will appreciate that. Turkey has enough strength; good growth dynamics, good demographics, good banking sector, strong public finances.”