Confidence is what’s lacking
We have stated for a time that foreign investors have not shown as much interest in Turkish equities and government debt securities as they did in previous years. Foreign entrances were low. Now we pine for those good old days.
According to data announced by the Central Bank last week, foreign residents or foreigners made took out $1.17 billion from stocks and $107 million from government debt securities in just over seven months from the beginning of the year until August 3. Thus, the total exit amounted to just under $1.28 billion.
However, foreign investors brought in exactly $8.8 billion in the same period last year. $2.6 billion of this amount came via stocks and $6.1 billion in purchases of government debt securities.
Let’s look at the same period of 2016. A total of $3.3 billion was raised, of which $320 million was in stocks and about $3 billion in the purchase of domestic debt securities. That is, we have gone from billion-dollar entries, to billion-dollar exits.
Why are we surprised that the exchange rate is growing so rapidly under these conditions? Unfortunately, we do not seem to have much of a chance of avoiding the upward movement of the currency if there are no moves to kick start foreign exchange entries.
It’s clear now that we have fallen behind in terms of economic policy decisions. Now, for example, will a Central Bank increase in interest rates make any difference? It is difficult to predict whether such a decision would convince foreign investors to return to Turkey, or at least not to exit because foreign investors are not interested in proportions, or percentages, or are not as interested as they used to be.
The much sought-after element now is “confidence”. Nobody thinks that Turkey will default on its debt, of course. That’s not what we mean by confidence. The concern is that the circumstances may be more negative in the future. In other words, the interest on a public bond you buy today may increase even more; the price may decrease suddenly. For that reason, foreign investors prefer to stay away from the Turkish market for some time. They can’t predict where the volatility in the Turkish economy will stop. No one can.