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July 22, 2013 For professional investors only Stock market last week BIST 100 ended the week up 2.6%, bond yields fell back below 9% and the lira strengthened against the dollar following a message by CBRT Governor, Basci, that a hike to the upper end of the I/R corridor was on the cards in the upcoming MPC, as well as a more dovish tone struck by Federal Reserve Chairman Ben Bernanke on the future of monetary policy. Banks, nevertheless, suffered heavy losses on Friday on news that some of them were exposed to a sizeable loan to a Turkish conglomerate that was having trouble making payments. Hard data however continued to come in strong. The April unemployment rate declined despite an increase in the participation rate while the central government posted a primary surplus in June on back of a pick-up in fiscal revenues. MACRO NEWS Central government budget balance. Central government budget produced TRY 0.3bn primary surplus in June, from TRY4.4bn primary deficit a year ago thanks to the strong revenues and favourable base effects on expenditures. Budget revenues increased 27% y/y in June, mainly due to the pickup in tax collections. Domestic VAT increased by 50% y/y on the back of stronger domestic consumption. Similarly, taxes on imports rose by 47% y/y (in USD terms 41% y/y), which suggests that June’s imports could reach USD23-24bn. This figure implies that 12-month cumulative c/a deficit could increase from USD 53.5bn in May to above USD 56bn in June. If tax payments incorporate energy SOE’s payments of past tax obligations – which was the case on several occasions in the past- the implied import level could be lower than USD 23-24bn but still remain elevated. On the expenditure front, favourable base effects limited the increase in government spending. Non-interest expenditures increased only by 6.4% y/y, thanks to the 5.1% y/y decline in personnel payments. Personnel payments declined as one-off payments due to the wage hikes in 2012 were not repeated this year. Capital expenditures increased by 67% y/y and maintained a similar pace of increase since the start of the year. Construction of motorways was the primary source of the acceleration in capital spending. The increase in current transfers was limited to 3.3%, due to the decline in transfers to Social Security Institution. However, the decline is likely to be only temporary and reverse itself next month. Equities ISE-100 Turnover*, $ mn Market Cap, $ bn MSCI Turkey MSCI EMEA MSCI EM P/E MSCI Turkey MSCI EMEA MSCI EM Int. Rates & FX CB Policy Rate G-Bond Yield + Eurobond Yield ++ 5 yr. CDS US$ / TRY EUR / TRY Macro Indicators GDP, $ bn, nom. GDP Growth CPI Current Acc./GDP Public Debt/GDP Budget Bal./GDP Country Rating L-T FC borrowing last 76.086 1.773 242 1.070.078 315 950 ∆ w/w -0,2% -3,0% ∆ y/y 23,1% -0,5% 0,3% -0,2% 23,1% -0,4% 1,5% 2011E 9,7 7,6 11,5 2012F 10,1 8,2 10,5 2013F 9,5 7,9 9,4 last wk. ago 4,50% 4,50% 8,83% 8,95% 5,64% 5,92% 186 204 1,914 1,933 2,519 2,526 yr. ago 5,75% 7,77% 4,97% 202 1,808 2,198 2011A 771 8,8% 10,4% -9,7% 39,9% -1,4% S&P BB+ 2012E 795 2,2% 6,2% -5,9% 37,5% -2,0% Moody's Ba1 2013E 875 3,5% 6,7% -6,7% 36,1% -2,2% Fitch BBB- * last 5 days' average + benchmark ++ eurobond, 14/01/2041 maturity Upcoming events Consumer loan stats (26th week of 2013) – Jul 22nd MPC meeting – Jul 23rd Number of arriving-departing foreigners and citizens (Jul’13) – Jul 23rd Sectoral confidence indices (Jul’13) – Jul 25th Business tendency survey (Jul’13) – Jul 25th Capacity utilisation rate (Jul’13) – Jul 25th Consumer confidence index (Jul’13) – Jul 29th Consumer loan statistics (27th week of 2013) – Jul 29th July 22, 2013 Non-residents' Bond Holdings and Consumer Loan Growth. During the week ending 12 July, foreign bond holdings decreased USD 0.6bn, despite USD 0.3bn increase in repo holdings. The outflows were broad-based across maturities; however, bulk of the outflows was from 2014 and 2022 bond holdings which declined TRY 0.9bn and TRY 0.5bn, respectively. In the same week, consumer credit growth on 13-week moving average basis continued to accelerate (0.4pp) and reached 39.6%. Unemployment rate declined despite increasing participation rate. In April, both unemployment rate and non-farm unemployment rate declined by 0.8pp to 9.3% and 11.5%. On a s.a. basis, unemployment rate (9.4%) and non-farm unemployment (11.7%) rate remained flat while participation rate increased 0.2pp to 51.3%. Industry and services sectors accounted for the bulk of the non-farm employment creation, contributing 82k and 53k to the employment, respectively, on a s.a. basis. Overall, non-farm employment increased 140k. Employment creation in the construction sector remained marginal (5k). Gasoline price hikes. The government announced TL0.08 increase to gasoline prices on top of TL0.11 increase on July 9. Assuming prices remain flat from here, the average gasoline price will be 2.5% higher on average this month. This would add 0.1pp to inflation. PM Erdogan against credit cards. PM Erdogan reportedly said in a speech that credit cards should not be used because private banks have been charging a significant amount of fees. He said that a certain bank, without providing a name, recorded TRY600m revenue in fees a year while three public banks combined recorded the same amount. Cukurova Holding asks for an extension. Bloomberg reported that Cukurova Holding applied for an extension (was granted 60 days in a recent decision) for the USD1.56bn payment to Alfa Telecom to recover its 13.9% controlling Turkcell stake. Reportedly, Cukurova Holding wants to wait for the result of its appeal pending at a US court. The case is related to liabilities to TeliaSonera, Cukurova Holding. The Privy Council Board will hear oral submissions on these points from the parties on July 23. Potential NPL risk in banking sector. According to daily Taraf, a large conglomerate is having repayment problems (total USD 2.3bn risk to the banking system). Dynamic growth fund sold its shares in Ulker Biskuvi. Dynamic Growth Fund sold its 21.41% stake in ULKER at TRY 13.75/share to Yildiz Holding and its participations due to the liquidation of the fund. Combined stake of Yildiz Holding, its participations and Ulker family increased to 79.9% from 58.49% with the sale. Regulation of bank fees. Banks have agreed with the BRSA to make term-life insurance a non-mandatory product for its credit customers, to remove fees charged on some services completely, and have offered to place a ceiling on other services, according to daily HaberTurk. According to the news the ceiling offered was deemed low by the BRSA which has asked them to re-evaluate it. A new player in media sector. Cengiz-Kolin-Limak Consortium acquired daily Aksam, TV news channel SKY360 and radio station Alem FM from the Savings and Insurance Fund (SDIF) for USD60m. The SDIF seized these assets from Cukurova Holding to collect its dues. We believe that acquisitions do not cause a remarkable change in the competitive landscape of the media sector. DISCLAIMER: Information in this document is provided by “TEB Portföy Yönetimi A.Ş.” (TEB Asset Management) for information purposes only. Investment advisory services are provided under an investment advisory contract, signed between the intermediary institutions, asset management companies, investment banks and the clients. Opinions and comments contained in this document reflect the personal views of the providers and shall not be construed as an offer or solicitation for the purchase or sale of any financial instrument, nor any promise of return.The investments discussed or recommended in this report may involve significant risk, may be illiquid and may not be suitable for all investors. Therefore, making decisions with respect to the information in this document may cause inappropriate results. Completeness and accuracy of the prices, data and other information contained herein are not guaranteed, and are subject to change without notice. All data presented in this document is obtained from resources that are deemed reliable by TEB Asset Management. 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