Possible Effects Of Market Swings on Turkey

Possible Effects Of Market Swings on Turkey

Concerns that the coronavirus would cause a slowdown in the global economy and that declining oil prices fell 30 percent in one day yesterday have plunged markets around the world. Whereas up to 10 percent of value losses were experienced in the stock markets of countries all over the world, the BIST 100 index closed at 5.5 percent in Borsa Istanbul. The process is expected to have a serious effect two years after the crisis that signs of recovery period relative to the economy of Turkey.

1-COLLAPSE ON OIL PRICES: POSITIVE

The price of Brent oil, which was at $ 66 a barrel at the start of the year, fell as low as $ 31 yesterday following the restatement of both corona and Saudi Arabia and Russia. Natural gas prices also declined in the spot market after oil prices fell. For Turkey, which has an annual energy import of 40 billion dollars, this development looks positive at first glance. As a matter of fact, total energy imports, as well as fuel prices, are expected to come down from tonight. The drop in energy prices is also positive news for inflation, which is at an annual level of 12 percent.

2- LOW INTEREST AND MONETARY EXPANSION PROCESS: POSITIVE

The economic crisis in Turkey that began in 2018 was also instrumental in the continued interest rate hikes that began in 2015 by the US Central Bank (FED) and the bank's balance sheet. The increase in the dollar interest rate was a nightmare for Turkey, as the gross foreign debt stock reached 60 percent of its national income and the foreign exchange deficit of the non-financial private sector was over $ 220 billion. The Fed, which went for interest rate cuts instead of interest rate hikes in 2019 because of the concern that the global economy could be stagnated due to trade wars, this time going for extraordinary interest rate cuts due to coronavirus worries, the expectation that interest rates will be drawn to 0 percent and a new monetary easing signal, is considered a positive development for economies such as Turkey

3-ESCAPE FROM RISKY ASSETS: NEGATIVE

While the Fed's push for interest rate cuts and monetary increases seemed to be positive at first, the picture is not that simple. With global recession worries and panic over the coronavirus, investors all over the world are fleeing from risky assets to “safe havens.” As a matter of fact, according to the Central Bank (CBRT) data, foreigners made a net outflow of $ 3.4 billion from the stock and bond market in January and February of 2020.

4-DIFFICULT TO ATTRACT FOREIGN CAPITAL: NEGATIVE

Foreign direct investment in Turkey, which has already declined in recent years and dropped to a net $ 5.5 billion in 2019, could be further challenged at a time when global markets are underwhelming. Foreigners buying real estate from Turkey, which was worth $ 4.8 billion last year, could be adversely affected by the huge drop in oil prices that have reduced income in Middle Eastern countries.

5-FOR BOTH TOURISM AND EXPORT: NEGATIVE

Tourism, which is one of the most negatively affected sectors in the world by the outbreak of Coronavirus, is of a very important dimension for Turkey. Thus, in 2019, Turkey generated $ 30 billion in revenue from tourism, a significant foreign exchange revenue in a crisis year. The decline in tourism is one of the negative developments for Turkish Airlines (Turkish Airlines), the airline that has the most flights to destinations in the world. The corona-induced slowdown in the global economy is also expected to negatively affect Turkey's exports. The drop in oil prices could also affect Turkey's overseas contracting services, which are worth $ 18 billion in 2019. This is because the countries that receive the most contracting tenders from abroad depend on energy exports such as oil and natural gas, such as Russia, Qatar, and Kuwait.

'DEVELOPING COUNTRIES MAY COME UNDER PRESSURE’

Underlining that another risk for Turkey is that Europe will go into recession in this process and that exports will be affected very negatively as a result, Altinsaç said, “Of course, it is too early to talk about all this, because we do not know if the event will turn into a real global recession yet. There could also be a few weeks of panicking market pricing. Let's not underestimate the fact that Global interest rates are at a historically low level,” he said.