The Turkish lira will gain about 2 percent this year to finish at 1.78 per dollar and the country’s main ISE-100 index will reach 93,000 by year-end, according to Is Investment Securities, Turkey’s largest brokerage house by trading volume.
The lira ended last year 5.9 percent stronger against the dollar, the third-biggest gain among emerging-market currencies in Europe, the Middle East and Africa, after the Polish zloty and the Hungarian forint. The currency traded 0.2 percent lower against the dollar to 1.7819 at 2:21 p.m. today in Istanbul. The ISE-100 rose 53 percent last year, the most since 2009, to end at 78,208.44.
Is Investment, a unit of Turkiye Is Bankasi AS, the nation’s largest bank by assets, wasn’t “positive” on Turkish government bonds, it said in a news conference today in Istanbul, where it unveiled its report on 2013 investment strategies. The increase in global risk appetite and “hot” money flows caused government bonds’ real interest rates to drop to “unacceptable levels,” it said.
“Turkey should watch out for an increase in hot money inflows following possible further upgrades,” Istanbul-based Is Investment said in the report. “This is the major risk for the Turkish economy.”
Yields in Turkey’s benchmark two-year notes dropped 483 basis points last year, the biggest fall since 2009. The yields rose 12 basis points, or 0.12 percentage point, to 6.28 percent at 2:34 p.m., after inflation slowed by less than analysts expected in December.
Is Investment recommended investing in banks’ deposits in the short term, variable-interest private-sector bonds for the mid term and inflation-linked bonds for longer periods. It said it didn’t recommend fixed-interest government bonds with mid-to-long-term maturities.
The weighted average interest rate for Turkish lira deposits of as much as one-year maturities was 9.86 percent, according to central bank data. The extra yield Turkish bank bonds provided over Turkish government bonds ranged from 40 to 160 basis points last year, while non-bank corporate bonds had a spread of 70 to 450 basis points, Is Investment said.
The firm expected at least one other ratings company to upgrade Turkey to investment level this year. Fitch Ratings Ltd. upgraded Turkey to the lowest investment grade BBB- on Nov. 5.