Skip directly to Accessibility Notice
  • Emerging Markets Debt Daily

    Turkey – Great Expectations

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    November 11, 2020

    President Erdogan’s policy comments spurred a major rally in Turkish assets. China’s October monetary aggregates gave rise to suggestions that credit growth is peaking.

    Turkish President Recep Erdogan made a major policy turnaround this morning, saying that he fully supports the central bank and that authorities will implement “bitter pill” policies if needed. This is huge, provided the newly-found policy orthodoxy lasts. The market clearly believes so―the currency was up by 351bps as of 9:18am ET (according to Bloomberg LP), the Borsa Istanbul 100 Indexsurged by 328bps, and short rates were 51bps (!!!) tighter. A major litmus test is next week, when the central bank will be holding its rate-setting meeting. The market is clamoring for a rate hike that would be big enough to push the real policy rate well into positive territory. 

    The big sequential decline in China’s October credit aggregates was largely seasonal, and the annual credit expansion remained steady. However, the economy is recovering, the GDP growth is becoming more balanced and this gives rise to suggestions that new credit might be peaking (the chart below also points in this direction). We do not think China is about to abandon its “drip stimulus” approach. But the very nature of this approach implies that support goes to the areas that need it the most―so we might see significant monthly variations among credit components, depending on the pace of the recovery and the strength of headwinds (including global ones). Whether or not this will slow the overall credit expansion in the near term or this will happen later in 2021―it’s too early to say.

    Argentina’s Economy Minister Martin Guzman said that the government wants a new Extended Fund Facilityprogram with the IMF. These programs usually come with structural reform conditionality. Would Argentina be willing to commit? Based on the recent history, we have a lot of reservations. But never say never (see bullet point #1 on Turkey). 

    Chart at a Glance: China Credit – Peaking Already?

    Chart at a Glance: China Credit – Peaking Already?

    Source: Bloomberg LP

    1Borsa Istanbul 100 Index is a cap-weighted index composed of National Market companies except investment trusts.

    2Extended Fund Facility (EFF) is an IMF lending facility established in 1974 to assist member countries in overcoming balance of payments problems that stem largely from structural problems and require a longer period of adjustment than is possible under a Stand-By Arrangement.


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

    The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.

    Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

    All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.