The Brazilian Finance Ministry announcement was made, in large part, to dampen the soaring value of the Brazilian real, which has climbed by as much as 35 percent this year. On Tuesday, the day the law came into effect, the news spurred an outflow of funds from the market and caused Brazil’s benchmark Bovespa index to plunge by 4.7 percent on Tuesday, the single biggest drop in more than seven months.
Despite some early optimism, observers that spoke with Today’s Zaman appear to feel that it is unlikely Turkey will reap any significant gains from investors scouring emerging markets for new places to divert their investments. “It’s much too early to tell,” said Murat Berk, an economist and investment strategist at Yapı Kredi Yatırım in İstanbul. “Brazil has sent a signal,” he said, but qualified this by noting that 2 percent is not that high. “It won’t have a major effect on Brazil and any impact will be incremental. I don’t think it will lead to huge outflows.” He emphasized: “It’s only 2 percent. The real is up by 35 percent. Two percent on a capital gain of 35 is really not that much.”
He did say, however, that any capital flows being diverted from Brazil may well end up in Turkish coffers. “The outflows will be looking for countries with liberal regimes and no tax on capital inflows.”
But Eylem Ünal, an HSBC strategist in private banking, was not very hopeful that financial flows would end up in Turkish markets. “The correlation was higher yesterday [Tuesday] when you compare them with today [Wednesday],” he said, referring to any potential spillover effects from the Brazilian decision in Turkey. He did not believe flows into the country would have a big effect on the lira-dollar parity either.
“If you want flows to come to Turkey, they won’t follow these stories,” he said, warning that Turkey needed to improve its investment climate. “There needs to be an anchor [in Turkey] to reassure [investors that] Turkey is the better place to invest. It is not a decision that will funnel money out of Brazil to Turkey,” he said, referring to the Brazilian tax application. “Brazil simply has a better story,” he said. “It is a commodity country. As long as commodities values continue to go up, there will continue to be more interest in Brazil [than in Turkey].” Last week, Turkish investors were spooked when the Constitutional Court ruled a zero percent withholding tax applied against foreign investors in Turkey was unconstitutional, with Turkish nationals being forced to pay 10 percent. The court gave the government 10 months to change the law, prompting jitters among investors in Turkey. Finance Minister Mehmet Şimşek’s reassuring words that Turkish bonds will not be subject to the withholding tax as well as his emphasis that the withholding tax would not be in the near term have encouraged investors whose appetite for risk has been grown as a result of increasingly positive signals and better than expected quarterly earnings coming out of the US. “I trust Şimşek’s words -- quite pragmatic and market friendly,” Berk said. He surmised that the likely way around the problem would be to make the withholding tax zero for domestic investors and therefore do away with any discrepancy between foreigners and Turks. “The markets generally believe that there will be a market-friendly solution.”
The yield on the benchmark Aug. 3, 2011 bond fell to 8.06 percent. On Tuesday it was 8.09 percent. The İstanbul Stock Exchange (İMKB) gained 1.52 percent on Tuesday, but closed at 0.6 percent down at the time Today’s Zaman went to press. The lira softened 0.8 percent to 1.4635 against the dollar.
