Michel Marks, the former chairman of the New York Mercantile Exchange, said, “A big stadium and a stock exchange… That’s all less developed countries need” when he was visiting Istanbul. “And the rest will follow”.
At first, I was very upset with his orientalist approach but then after long reconsideration, I admitted that he was not wrong. The people of developing countries give the impression that they are some sort of stock market aficionados, always worried about the state of FX rates and mistrustful of their national currency, maybe since the 1970s. That’s all people talk about in Turkey all day long. “What will happen to FX rates? Will interest rates fall?” But, braver ones seem to hope for help from stock exchange markets.
As another year comes to an end, we can see that the “BIST-exchange rates-interest rate” trio is fluctuating again to achieve a new balance while there are only 7 trading days left until the New Year.
The stock investors I met with on the weekend said, “Everything is going well but we may still need to lighten our portfolios before the New Year’s Eve”, which means they want to welcome the New Year with some cash in hand, not with stock certificates.
“Will falling exchange rates solve everything?”
Last week, investors made a great of money both from gold, FX rates as well as stock markets. As a matter of fact, it’s only natural for gold investors to make money as FX rates go up in Turkey, unless gold falls sharply in foreign markets; because, the gold price per gram in Turkey is calculated by multiplying the price of gold per ounce with USD/TRY exchange rate. Gold price in international markets has been rising since December, just like USD/TRY exchange rate. Therefore, it’s nothing but normal for Gold Price per Gram in Turkish Lira to go up.
Slowly starting to fall down after rising above a level of 100.000 in the last days of September, BIST has now been going up since the beginning of December. Also be reminded that having started to rise from a level of 74.000 in November 2016, kept rising until then end of January 2018, and stopped around 120.000, the index had started a gradual fall, down to 83.000 in May this year.
The recent rise has started in May and the index keeps gradually going up. If nothing negative happens for a while, political wise, the next purpose of BIST index would be to achieve a higher level than its previous record one.
We shouldn’t be too hasty about the benchmark bond yield either. Even its performance so far indicates a 14 pts decline compared to May 2019. In other words, CBRT cut policy interest rate by 12 bps, causing bond yields to sharply fall down. I hope this decline will help reduce internal debt stock. Otherwise, Turkey could fall in the same trap the U.S. has once fallen, resulting in higher amounts of interest payments due to overborrowing, as interest rates keep falling down. Therefore, economy administrators must be very careful when handling the situation.
