Turkey's Perma-Bear Says Now Is the Time to Buy Lira Assetsby and
Amid turmoil, Turkey's current-account deficit set for zero
Yesilada sees terror attack pushing AK Party into coalition
Amid the worst terror attack in its history, divisive looming elections and a slowing economy, one of Turkey’s most entrenched bears has picked now of all moments to turn positive.
And it’s not just because the lira is near a 12-year low. For the first time since 2009, Turkey is set to erase its current-account deficit in data due Wednesday, according to the median estimate in a Bloomberg survey. Even Saturday’s tragedy factors into Atilla Yesilada’s outlook, as the backlash against the formerly dominant AK Party for failing to prevent the bombings will push it into a coalition with the largest opposition party, helping economic policy making.
Through this year’s emerging-market turmoil, Turkey’s lira has plunged more than any other major currency except for the real. Only Brazil has higher two-year yields than Turkey.
"Turkey’s great positive decoupling within the emerging-market asset class has finally started," Yesilada, an economist at New York-based consultancy GlobalSource Partners, said by phone on Monday from Istanbul. While political parties are divided by the attack, "one of the few areas the new government can agree on and will make rapid progress on is structural reform," he said.
Part of Yesilada’s case is based on policies delayed through two elections this year suddenly being enacted, including the first interest-rate increase since January 2014. Inflation will continue deteriorating until then, but higher borrowing rates by the end of the year will attract investors and bring stability to the lira, he said.
The lira declined 0.7 percent to 2.9478 per dollar at 11:20 a.m. in Istanbul, bringing its depreciation since Saturday’s bombings in Ankara to 1.3 percent. Islamic State is the main suspect for the twin suicide bombings, which killed 97 people gathering before a peace march, Prime Minister Ahmet Davutoglu said yesterday. The attacks, rather than unifying Turkish society, have further divided it amid campaigning for the second general elections in less than five months.
After a 15-year streak in which he’s rarely been bullish, Yesilada still doesn’t discount the danger of political polarization. For his call to stand, the election results on Nov. 1 need to produce what polls suggest is the most probable outcome -- a coalition. President Recep Tayyip Erdogan’s influence on policy, including his drive for lower interest rates, would diminish.
"I’m not saying Turkey is going to produce staggering growth -- it’s going to be around 3 percent," said Yesilada. "This is a modest story at a time when other emerging markets are suffering from various ills that are positives for Turkey, like lower commodity prices."