Risk appetite endures
The problem with generalizations – stylized facts - is that they are what any serious analysis requires as essential ingredients, but also that if one stops at that right there, they won’t help. Hence, the stock exchange. On the basis of cheapness mostly, but also on the grounds that a relative and mild recovery is on its way perhaps, the stock exchange performed admirably well.
Banks yielded c. 10 percent on a dollar basis in September, the top performer stock of the month so far globally.
People forget sometimes what figures mean. For instance, a 10 percent credit growth rate for private savings banks 12 months ahead is a very high rate by global standards. As it comes from negative territory, the impact on outlook would be even more pronounced, as is now the case.
Similar considerations apply to fixed income. Because bonds have already been sold –in my view a lot, but this obviously squares with country ratings - any downside has little place to go, but an upside has more room.
Likewise, because the swap curve had already priced in a 325 basis points cut, and because Goldman Sachs issued a report that triggered interest in bank stocks, which reflects both still solid a risk appetite as well as a favorable outlook for Turkish banks, the CBRT decision has passed without a change.
Ordinarily, even two months ago, most analysts would have predicted a sell-out conducive to a currency overshooting; nothing happened despite a 750 basis points cumulative rate cut.
However, there is also the following point. The CBRT didn’t signal a real rate reducing sequential cut season. As long as the anticipated real rate hovers around 3 percent, risk-loving investors – they are the only one left - may continue to feel comfortable over short time windows.
That the U.S. and China will renegotiate in October provided the global wall paper new flow, perceived by EM investors as a go. Given the global green light, this climate is likely to last for another two weeks.