Lira making foreign investors hesitant

Foreign exchange became unusually tight over the last couple of years, especially the dollar. The lowest level of dollar/TRY up to March 8 was 3.74 and the highest is 3.82, with a mean of 3.78. If we take 100 as the average, the dollar moved in a tight margin between 98.9 and 101.1, which affects non-residents’ interest in Turkish assets.

The most convenient period for a foreign investor to enter Turkey, when all other factors are ignored, is when the foreign exchange rate is high. The higher exchange translates to more lira – a winning while buying scenario. When foreign exchange is brought in while the exchange rate is low, it is already a risky investment.

But the foreign exchange rate is not on the rise this year. Look at the margin: it is squeezed between 3.74 and 3.82. There is no ‘winning while buying ’, which poses a challenge for foreign investors.

We apply much higher rates on government securities, and the dollar entering the Turkish market can well be converted to TRY not on 3.80 but on levels like 4.00 or 4.10. It’s a difficult decision. For foreign investors, the foreign exchange rate is not the only factor in their decision on investments. But we can’t say that it’s not important, either.

When we analyze the data, over the first nine weeks of the year foreign investors didn’t provide a consistent inflow. It appears they are on the fence. After continuous outflows in the weeks ending February 9 and February 16, there was inflow again in the week of February 23. This was interpreted as a fresh round of investments in Turkish assets. But it didn’t last long. Foreigners sold off last year, although it was not a huge volume.

One week is not decisive. But it stands out that foreign investors sold off $74 million in the first nine weeks of the year. And let’s remember that stock trade figures of foreign investors were revised for the previous week’s data.

This inflow was all through DIBS (government securities). Non-residents bought a net worth of $882 million. Net purchases of stocks and DIBS remained at $808 million.