October 12, 2015•Update: October 12, 2015
ANKARA
Turkey's political risk profile is not changed after the bomb attack in Ankara on Sunday, experts told Anadolu Agency on Monday.
The political risk profile, or country risk, is closely watched by investors whose concern is for the safety of funds placed in a particular nation.
“There should be no major short-term effect on business or investment,” commented Ali Sokmen, an analyst with the Control Risks consultancy in London. “The targets are not economic targets; they are related to civil society rather than business. Initially there will be investor concern, but unless this becomes a pattern with regular attacks every month it will have little effect on the medium- and long-term economy.”
There is relatively little impact from such events on the political risk profile for Turkey, commented Steen Jakobsen, an analyst with Saxobank in Copenhagen, in an interview with Anadolu Agency.
“The risk premium for Turkey is too high. In a world of depressed yields and expensive equity valuations, Turkey offers plenty of opportunities.”
In fact, analysts continued to rate Turkey as relatively stable in terms of country risk. Turkey ranked 54 out of 186 on the Euromoney Country Risk survey on Monday.
The credit agency EKN rated Turkey at 4 out of 7, a solid rating according to country analyst Victor Carstenius. “Political stability in Turkey has been under pressure in recent years,” Carstenius said, citing the uncertain election outcome along with regional and geopolitical conflict as factors.
“But the strong public finances and solid banking sector are stabilizing factors in this respect,” he explained.
In fact, economic indicators show little investor reaction to the Ankara bombing. Borsa Istanbul slipped a mere 0.5 percent on Monday morning on the news. The lira held at about 2.93 against the dollar. Stocks in Asia and Europe were slightly higher in morning trading – there was no clear reaction to the incident. The price of oil also held at about $50 per barrel.
But Istanbul-based Coface economist Seltem Iyigun said that Turkey’s long-term political and economic stability would matter more to investors.
“Early in the morning on Monday, we saw Turkey's five-year credit default swaps (CDS) rose to 275 basis points after closing at 266 bps on Friday [CDS are an indicator of sovereign-debt risk].” That is not a major change.
“After the bombing, we may see some downward pressures on Turkish assets despite recent lower global risk aversion on expectations that the Federal Reserve may delay its rate hike process,” she said.
“However what would impact investors' opinion about Turkey the most will be the outcome from the Nov. 1 election,” Iyigun continued.
“If the political uncertainty decreases, we would witness a strengthening in Turkish assets as narrowing current account deficit, good growth prospects (we estimate end-2015 growth at 3.1 percent and end-2016 growth at 3.4 percent) and solid fiscal stance with low budget deficit and public debt ratios still make the country attractive for investors,” Iyigun said.
“We should expect substantial relief trade after the Nov. 1 election,” agreed Jakobsen. Investors know that some political risk is inherent in doing business in the Middle East, he added.
Once the political risk issues, like the election, stabilize in Turkey, markets will again become interested in the country’s solid fundamentals, pointed out Eli Koen, a Turkish equities analyst at Geneva-based Union Bancaire Privé, in a note published on Monday.
With a new government established, Turkey should be able to direct a stronger focus on security issues, said Ege Seckin, a country risk analyst with consultancy HIS in London.
“The political parties must find a working arrangement. Once that is achieved, the government should be able to confront the dangers posed by terrorist groups in the region. When that happens, greater stability will be the result,” Seckin said.
