A new IMF stand-by deal has been on investors’ minds since the beginning of the year, when government officials first broke the news about a much-discussed renewal of a previous agreement ending in May 2008. Investors in capital markets, which shot to record levels after finally getting an answer to the uncertain IMF agreement on the horizon, are beginning to wonder when and whether such an agreement will be executed.
Although rumors and hints from the government regarding a new agreement causes capital markets to fluctuate significantly, a delay in discussions between the government and the fund has largely left Turkey’s investors indifferent to snippets of information about the deal, preferring to hold off asset trades until a final agreement is reached.
Turkish Economy Bank (TEB) Portfolio Management Deputy General Manager Mehmet Özkaya, speaking to Today’s Zaman, noted that the flow of news regarding the IMF deal has had positive short-term effects on asset prices but that “prices reverted back in the [following] days as no agreement materialized.” He continued by noting that markets have largely “priced out the deal.” He stated that markets have become neutral to news and that “only the actual agreement will have a positive impact on asset values.”
The chief economist of Finansbank, İnan Demir, in a written statement to Today’s Zaman, stated that although markets reacted positively to initial announcements about a deal with the fund, the agreement delay has “chipped away expectations of an IMF deal in the near future.” On the other hand, Demir noted that bond markets still haven’t settled down to pre-rumor levels, indicating that expectations are still, to an extent, affecting markets.
External shocks still strong
Regarding market developments of the past week where scares of unsustainable debt in the eurozone along with rising unemployment in the United States sent global capital markets crashing, Özkaya stated that “in relative terms local markets in Turkey have outperformed their peers during this period.” He continued by noting that Turkish assets have been outperforming their peers since the beginning of 2010 and that the recent deterioration in local markets -- with the İstanbul Stock Exchange’s İMKB-100 index falling by 9.3 percent in less than a week -- “are purely due to external factors and are not caused by any local events,” thus ruling out any interference that the delayed IMF deal might be having on the current downturn. Demir mirrored this sentiment, adding that that it would be wrong to “blame this exogenous downturn on a lack of developments in the discussions with the IMF.”
Ersagun Şimşek of Tera Brokers, speaking to Today’s Zaman, said the fire sale of the past week in Turkey’s capital markets indicated the instability of markets and that investor confidence still had not been secured. He stressed that the instability of the market was evidence that investor confidence was still up in the air.
