Fed, non-res­i­dents, eq­ui­ties

Dünya Executive - - FINANCIAL CORNER -

Non-res­i­dents eq­uity pur­chases picked up in May, but then they gained mo­men­tum after the sec­ond elec­tions. That, ob­vi­ously, co­in­cided with the Fed re­vers­ing course. Fixed in­come didn’t move much. The sell-off isn’t as bad as it was in May, but that’s it.

The net­ted-off figures fluc­tu­ate, but they are mostly pos­i­tive for eq­ui­ties re­cently.

Hold­ings are very low for bonds, not as low as in May, but much lower com­pared to Jan­uary. For eq­ui­ties, 65 per­cent in late June is the sec­ond high­est monthly in 2019.

As VIX EM and VIX ap­proach each other, good news for EMs is likely to con­tinue for a cou­ple of months more. As such, eq­ui­ties could be the main venue here, but then eq­uity hold­ings are small com­pared to bonds. Fed down­siz­ing-cumeas­ing will have a size­able im­pact though.

How­ever, re­ly­ing on this cli­mate to go deep into the rate cut­ting zone may be counter-pro­duc­tive. I take it for granted though that un­til late Septem­ber there won’t be any prob­lem as re­gards TRY sta­bil­ity.

I frankly don’t know how this is (was) pos­si­ble, but all of a sud­den, risks were down­played. The only ex­pla­na­tion is the ex­pected fall in in­fla­tion, and the ex­pected (ac­com­pa­ny­ing) ini­ti­a­tion of a rate cut­ting se­quence, bar­ring any po­lit­i­cal or oth­er­wise ex­oge­nous risk.

Well, risks pile up, but the re­sult is the same al­though 425 ba­sis points cut is a bit too steep.

The be­hav­ior of res­i­dents vis-à-vis dol­lar­iza­tion will be de­ci­sive in the com­ing months. If TRY de­posit rate cuts stop short of break-even, fine. Oth­er­wise, dol­lar­iza­tion may pick up again.

Out­look. Op­por­tu­nity for eq­ui­ties, neu­tral for bonds, ques­tion mark for res­i­dents’ FX/TRY trade-offs. Calm un­til the end of the sum­mer.

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