MID-TERM PLAN, TAX, NORTHERN IRAQ AND THE TURKISH LIRA
Developments in the US still seem to be the main driver of the global markets. The markets closely eye signs of a potential Fed rate hike in mid-December. Elsewhere, news from North Korea has consistently been putting a strain on the markets in recent months.
The most important development in Turkey last week was the announcement of the Mid-Term Plan and new tax regulations. The recent developments regarding Northern Iraq strengthened the negative disintegration of Turkish lira assets. Moreover, the deflation scenario also made the news after US President Donald Trump was followed by a traditional pricing reaction of the global markets. The Trump II scenario is no different for the markets than the Trump I term. The strong US dollar and rising US rates has sparked a drastic sale of developed country currencies, local denominated bonds and stock exchanges. The MSCI Turkey index has decreased by 3.4% and lost a total of 11% since the start of September.
At a time when the US is discussing a decrease in taxes, Turkey is debating an increase and this impacts the pricing mechanism of the global markets. The Republican offer to drop corporate taxes from 35% to 20% and income tax from 36.6% to 35%, is expected to fasten the capital flow towards the US. This points to a market where the US dollar is to strengthen and a rise in Wall Street.
These developments were strongly felt at the Borsa Istanbul. The move to support that growth by increasing corporate tax levels for financial institutions from 20% to 22%, was the major cause of a sharp sale trend of the Borsa Istanbul. As the market was striving to recover, the effect of it on bank profits will be viewed with interest.
If the markets are pricing the Trump II scenario then the trend in the developing markets is expected to be downward, analysts said.
The scenario foresees an initial support at 100,000 levels. It is recommended to concentrate on Turkish lira denominated investments in the portfolios during the last quarter of the year.