S&P Proves Once More How It Is Directed
We all remember what S&P did to the American economy during the 2008 financial crisis. On June 2nd, 2008, the crooked credit rating agency had cut the credit ratings of the beleaguered major banks of United States, sending shocks on the market that eventually led to the bankruptcy of Lehman Brothers.
The same agency cut the credit rating of United States of America for the first time in its history in 2011, from AAA to AA+, citing the debt ceiling stalemate in the U.S. Government. The cut was announced eight days after the debt ceiling agreement in parliament solved the stalemate. The same event led to an investigation by U.S. into S&P for its role in 2008 crisis which eventually led S&P’s CEO to step down, a mere 18 days after credit rating cut.
“Credit rating business has transformed from a financial to political one”
Since then, S&P kept performing its business as usual. Its business basically transformed from a financial to political one. It raised the credit rating of political allies of whatever U.S. Government is in place and cut the rating of whatever annoys U.S. Moreover, S&P takes its action at the most vulnerable situations of whatever country it targets. Just as they did against Turkey yesterday.
The chart above is a repeating, but temporary memory. External parties search out and identify vulnerable situations in Turkish economy and act to take advantage of it. Interestingly, this time it places Turkish equity markets in a better spot to invest.
Lira To Stabilize, Borsa Istanbul to Rally After Elections
S&P’s credit rating downgrade of Turkey is not significant as it doesn’t move the country from “investible” to “junk”. The timing is significant though as it comes a few days after Abdullah Gül, the previous President of Turkey and the strongest potential candidate against Erdoğan, withdrew his bid from the presidential elections on June 24th.
Economic analysis shows some fragility against Dollar as the conglomerates in Turkey are using their credits in foreign currency and inflation is above 10%. On the other side, the only reason inflation is high is Turkey’s 2017 push for aggressive growth. Turkish Central Bank has been keeping its rates flat for the past six months for this purpose and it’s on the move to intervene now. The graph below shows CBRT’s first intervention last week. More interventions will come after elections to soften the volatility in its currency.
Finally, people familiar with election season in Turkey would know that these situations are temporary and the country, along with its currency, gets valued after such elections. Second half of 2018 will be the time to invest for anyone that looks for a good return on investment.
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MaQasid Portfolio Management publications are produced by MaQasid Portföy Yönetimi A.Ş., a Turkey based portfolio management company registered with the Capital Markets Board of Turkey. The information and opinions herein are for general information use only. MaQasid Portföy Yönetimi A.Ş. does not guarantee their accuracy or completeness, nor does MaQasid Portföy Yönetimi A.Ş. assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice.