Turkey Fears Are Overdone - Analyst
Post date: Jun 03, 2013 1:51:36 PM
Turkish markets fall sharply as anti-government protests sweep the country. But hold your nerve, says Commerzbank's Simon Quijano-Evans. Emerging markets - especially Turkey - remain attractive.
LONDON, ENGLAND, UK (JUNE 3, 2013) (REUTERS) - HEAD OF EMERGING MARKETS RESEARCH AT COMMERZBANK, SIMON QUIJANO-EVANS,
"(QUESTION: Well Simon, let's start with equities. Pretty bad day, down around 6%. Is this knee-jerk or does this have more to go?)
No, I think obviously it's knee-jerk, markets opening up to news and the surprises that we had at the weekend. But if you look at Turkish equities compared to peers over the last two years and there has been also some strong outperformance whether it's Western European or Eastern European or EM peers for that matter. So some sort of a reaction is bound to happen at these sorts of situations. (QUESTION: And of course the selloff in equities much greater than that in currencies and bonds.)
Yes, I mean the currencies and the bonds backdrop will be more determined by what's happening in global emerging markets in general. And that at the moment is a function of US treasury yield moves. We've moved above 2.05% which is the first time since November of 2007 that we've seen US treasury yields go above two standard deviations above their 12-month average. So there are a lot of trigger levels out there at the moment for that backdrop.
(QUESTION: And we just had a chart of the Lira there against the Dollar, hit 1.90 today. Are we looking at a break through 2?)
Well the thing is here that again, US Dollars should be one of the main drivers for EM currencies. I mean if you look versus Lat Am currencies again, this sort of situation is not happening. But obviously the central bank and I think markets tend to look more towards the basket of 50-50 Euro and Dollar/Lira basket which at the moment is trading about 2.17, 2.18 levels. Anything above 2.15 is probably where the central bank starts to look at the issues and it's not going to comment simply because of what happened at the weekend. But if we get protracted protests which is not the general expectation at the moment, then obviously we'd probably see some reaction, verbal at least from the central bank.
(QUESTIONS: Okay. And just to finish up, how significant is the breach today of 7% on the 10-year bond?)
Again, this is EM-specific so it's not just idiosyncratic towards Turkey, it is an EM-specific issue. And this is a reaction to US treasury yield bonds, if you like, than the last one to two weeks. So it is a significant move, but it's not limited to Turkey. I think that we're going to see over the next few months for emerging markets in general some more spikes on the upside given that the pressure on the US treasury yields has been there. But we like emerging markets as a whole, we like emerging market bonds as a whole and Turkey stands out as one of the best fiscal stories both in EM and developed markets."