Turkish Daily Report

STRATEGY 

·        Technical outlook for BIST100 worsened yesterday:

o   BIST100 broke main USD support at $23.2k and closed at the lowest print since June 23, 2009 ($22.8k) – new USD support at $23.3k , $23.2k becomes short-term resistance;

o   BIST100, on TRY basis, broke interim support at 69.8k but closed above main support at 69.2k (low print from Dec 14)

·        Turkish equities (-6.9%) are outperforming EM and EM EMEA peers by 5.9% and 9.7% YTD on MSCI index basis.

·        As we write, Asian EM equities are printing new daily lows with all indices in negative territory (Shanghai -2.5%; Sensex -0.6%; Kospi -0.3%)  USD/EUR equal weight TRY basket is down 0.1% (3.1920 → 3.1876) from BIST close last night. We expect a slightly negative opening for BIST, especially with the recent +2% sell-off in Shanghai.

·        PM Davutoglu continued his meetings with the foreign investment community in Davos yesterday – According to Milliyet daily,  potential investors in insurance and energy sectors were in attendance and they asked Davutoglu for reforms that would make investing in Turkey easier (such as customs reforms). Davutoglu promised that these reforms will take place in the next 6 months and told the foreign investment community in attendance that he will monitor their promised investments closely. (Source: Milliyet)

MACRO

·        ECB meeting today> Risk sentiment remained weak with further d/w pressure on energy & commodity prices, despite some intraday recovery from extensively low levels on PBOC’s liquidity injection. ECB is exp’d to remain put tdy, after it extended its asset purchase program & cut deposit rate by 10bp in Dec => Draghi’s press conference will be monitored for hints over their reaction to recent developments. In TK > portfolio flow & loan growth data for wk ending 15 Jan will be released.    

·        Slightly tighter liquidity conditions > Although it has almost no impact on mkts, CBRT has been tightening liquidity conditions slightly, as a reaction to deteriorating infl outlook & deprec’ing ccy. Banks incr’d their O/N borrowing to TRY 40.9bn y’day & avg repo funding cost of banks surged to 8.93%, from avg 8.8% in Dec. In the very extreme, CBRT has the option to stop 1-wk repos & give all TRY 94bn funding need of banks through ON repos => avg repo funding cost could rise to as high as 10.75% => minimal impact on ccy, as s/t swap rates already @ this lvl => so the carry on TRY would not change at all. In order to have some material influence, CBRT should hike the upper bound of interest rate corridor but their recent communication suggests it is very unlikely. 

·        The commodity story > Ongoing decline in commodity & energy prices continues to support TRY => acc. to our relative value index against commodity exporting countries, TRY performed 0.7% stronger ytd, despite deteriorating infl & fiscal outlook in Medium Term Program. However, weaker fundamental outlook seem to have capped even better performance, as we calculate that TRY u/p’d a basket of commodity importers by a significant 2.0% ytd. TRY basket elevated slightly above 3.20 y’day, only slightly below Sept’15 high @ 3.25, as EM sell-off reaches extremes. Mkt is more likely to be more sensitive to +VEnews from here, like further easing from major central banks or a delay to Fed hike.

 

·        Bonds remain strong, despite upcoming supply> 5y & 10y bond yields ended the day about 2bp lower @ 11.24% & 11.18% y’day, although the USDTRY rose to above 3.06 y’day. 5y bond yield is almost at its peak reached in Sep 2015, but composition of this yield is different. Real yield in CPI linkers is down 56bp from its previous peak at 2.69%, while breakeven inflation rate is 55bp higher at 8.33%. While bond yields are at attractive levels, a significant recovery seems unlikely before stability emerging markets. Also, we continue to think that Treasury auctions next week might put some issuance pressure on bonds. 

COMPANY NEWS

·        TAVHL (BUY, TP:TRY30.90) > CEO Sani Sener said y’day that EBITDA could decline 50% after its concession at Istanbul Ataturk Airport ends => already know from financial highlights announced earlier. The decline in TAV Airports’ EBITDA due to termination of Istanbul Ataturk Airport concession by Feb 2021 is already part of our forecasts and valuation. Mr. Sener said the company plans to offset 30 ppt of the decline within the next five yrs without giving details. Mgmt previously said they aim at partly compensating for the decline through new concessions and fast growth of service companies. Yet, we do not plan to incorporate such plans into our forecasts before more concrete developments take place.

·        SAHOL (BUY, TP:TRY10.70) > ann’d Exsa bought an add 3.65m shrs on Jan 20 @ btw TRY7.93 and TRY7.99/share => Exsa's shareholding in Sabanci Holding has increased to 0.96% (19.6m shares) with this purchase. Sl. +VE for SAHOL. This was the twelfth purchase since the holding announced a 40m share-purchase program on Dec 29 to last until the next shareholders meeting which is usually held in late March.

·        ALBRK (BUY, TP:TRY1.81) > bought back 500k shares @ TRY1.36/shr y’day, taking the total so far to 1m shares. Continuation of buy-back should limit downside in share price in our opinion. +VE.

teb ytr