BANKS WILL OUTPERFORM THE MARKET IN 2018
For the last 23 months, emerging market equities have been the darlings of the investment world. With a dollar-based return of 45 percent, emerging market equities have the best return among major asset classes in the last 2 years if we do not include cryptocurrencies. With global growth improving and no sign of wage inflation in developed economies, EM equities has been the preferred asset class for the last 2 years. The main theme behind Turkish equities’ 47 percent rally in TRY terms and all-time high lira print on the last day of trading for the year was global inflows into EM equities. But, the Turkish growth story, aided by the credit guarantee fund (CGF), helped immensely. Despite the worst EM currency performance, Borsa Istanbul was able to enjoy inflows into aviation, steel, oil sectors while banks lagged significantly over the last 4 months. We believe that in 2018, banks will outperform the overall market with tourism and aviation sector inflows continuing. We see one main risk for Turkish equities next year – an abundance of IPOs and SPOs that may amount to TRY 10 billion by some accounts. With Turkey’s MSCI EM weight at all-time lows (one percent), assuming that Turkey will not be lifted to consensus overweight positioning in EM portfolios, such an high IPO and SPO volume in a relatively short period of time may lead to profit taking at a time when the foreign ownership in BIST is at relatively high levels (65 percent of free float owned by foreign accounts).