International investors continue to look to Turkey

By Gokhan Kurtaran

LONDON

Foreign investors continue to see Turkey as "investible" by focusing on the country’s economic fundamentals despite the recent rating-cut decision by Moody's, according to leading finance experts speaking on Tuesday.

Timothy Ash, London-based head of Central Eastern Europe, Middle East and Africa credit strategy for Nomura International, said there were no deterioration in the ratios of Turkey's economy and no sign of a change or build up in external financing risks to really threaten credit worthiness.

"Most foreign investors were underweight Turkey risk, and this is now reflected in muted market reaction as positioning was favorable. Imagine if you had said: 'Friday, Turkey is getting downgraded to junk' most people would have thought it would have re-priced credit 50-75bps, but credit is just 20bps or so wider today. Remarkable really," said Ash.

"I don't think this move was justified as I think that Turkey's proven willingness and long track record of paying should justify investment-grade status, to be honest..." he added.

"This might be surprising to some but reflects underlying durability/stronger fundamentals than assumed by Moody's and also prior positioning -- some investors have been waiting for this move to clear the air to buy," he added.

Turkey's basic fiscal figures, low public debt ratio, continuing economic growth and domestic demand provide long-term foreign investors with opportunities. Therefore the negative influence of the decisions by credit rating agencies remains limited.

Looking to the past, Turkey has never faced trouble in paying external debts, even during the 2001 economic crisis. In recent years, the increasing risk of regional conflicts has not proved an obstacle to handling Turkey's external liabilities.

Foreign investors are seeking opportunities and profit in emerging markets amid an environment of low global growth rates and negative interest rates.

Orhan Okmen, chairman at Japan Credit Rating (JCR) Eurasia, stressed the negative evaluations about Turkey after Moody's decision did not reflect the truth, adding: "Turkey is still an investible country."

"Although the risk of the country's external financing liabilities has been continuing, there is no additional deterioration compared to the past positions," he said.

"We can talk about a slowdown in economic growth. But the advantageous demographic and economic diversity of the country is protecting the economy from more deterioration," he added.

Turkey, South Africa ratings

According to Moody's, Turkey's credit rating is Ba1 which is two levels lower than South Africa's Baa2 rating. However, growth of the South African economy is about to stop in contrast to the performance of Turkey's economy.

International Monetary Fund (IMF) projections reveal South Africa's economy will grow by 0.1 percent at the end of this year, and one percent next year at best. About the country's economy, Moody's is also expecting a 0.2 percent growth performance for this year while forecasting a 1.1 percent growth next year.

Turkey's economy will grow by 3.8 percent by the end of this year with respect to IMF projections.

However, Zuzana Brixiova, a senior analyst at Moody's, has said the chance of decreasing the credit rating for South Africa in next December’s evaluation was very low.

Moody's has said the agency was expecting an average economic growth of 2.7 percent from Turkey between 2016 and 2019.

*With contributions from Muhammed Ali Gurtas in Ankara.