Us and them

First things first, this is not a music critique, and also it’s not about the famous song by Pink Floyd with the same name. With the global backdrop stabilizing, synchronized global growth continues supporting flows despite trade war risks. In its latest World Economic Outlook, the IMF upgraded its global growth forecast by 0.2 percentage points to 3.9 percent for this year and next year, with the improvements mostly explained by bet- ter growth prospects in developed economies and commodity exporters. Despite some short-term noise with some high-frequency indicators, Chinese economic growth remains solid despite some expected slowdown. This backdrop of the more balanced growth-inflation mix should continue supporting emerging markets’ asset prices from a structural point of view. The recent increase in market volatility has been a combination of global and idiosyncratic factors. According to recent comments from Bank of America Merrill Lynch strategists, emerging markets’ asset prices have been resilient to noise and will continue to give attractive entry points.

With this background, Turkey again dived into its full political agenda, which resulted in an early election decision from the ruling AK Party and its partner MHP. Markets cheered but the economic and structural difficulties remain on the horizon, perhaps tougher than before. In this context, strategists pointed out that the rally in Turkish markets will be short-lived without an execution in the structural reform agenda, (other than generous government incentives on all fronts).