Whither the foreign investor?

FOREIGN investors have exited the Turkish market, selling a total of USD 5.7bln in stocks and USD 7.7bln in government debt securities between the beginning of the year and September 25. However, tables turned at the beginning of October. The foreign exit halted between September 28 and October 2 when a net inflow of USD 610mln entered the Turkish market.

The end of exit trend and the inflow are, of course, important but what’s more important is whether this inflow will continue or not. This amount of inflow in a week is not significant in and of itself, unless it turns into a trend. We will see in the next few weeks whether this is the beginning or not. If foreign investors are returning, what would it mean?

> There’s general agreement that the foreign exchange will not increase further. Foreigners who would earn TRY 8mln from a one million dollar investment today would not return to the Turkish market this early if they knew they would earn TRY 9mln for the same amount in the future.

> We can’t know if foreigners have been tipped off about a possible rate hike by the Central Bank or whether the government will make moves to prevent another increase in the foreign exchange.

> Aside from the increasing foreign exchange, in case of a retreat, although securities won’t yield much profit, there may be an advantage during the exit. Foreigners may be looking out for this as well.

> It’s significant if foreigners return to stocks or government debt securities. The return to stocks will stem from mainly the expectation of an increase in prices. However, the real return should be expected in government debt securities since the interest rate jumped compared to a few weeks ago. A return to government debt securities would mean that the interest rate will not rise in the future.

Has the surge in industrial production come to an end?

INDUSTRIAL production increased by 16% while seasonally-adjusted production rose by 10.4% in August compared to the same month of the previous year. With the end of the crushing impact of the pandemic, it’s possible to see a calmer outlook. Hence, under these circumstances, it’s not hard to predict what we can expect in the months following August.

The 16% raw increase is the highest monthly increase in industrial production since June. The reason is straightforward: The index did not rise because of a significant increase in production but because last year’s production levels in June and August were low during due to a decrease in workdays during Ramadan and Eid.

Since the seasonally-adjusted index is based on equating the number of workdays, the volatility in the raw index was not reflected in this calculation.

Long vacations are out of the question in the last four months. We can see the impact of this on last year’s production. Production levels in the last four higher both in terms.


The direction of the production level based on the raw index shows that it’s hard to catch up to last year in the last four months.

The average of the raw index stood at 123.1 in the last four months of 2019. Meanwhile, our production in August stood at 114.9. We may get close to last year’s level if we somehow increase our production.

But the reality is we haven’t even been able to match the average of the first eight months of 2020. Also, if our production in the last four months of the year is below last year’s numbers, the whole production in 2020 will not catch up with last year’s.


The New Economic Program estimates the Turkish economy to grow by 0.3% in 2020. But if the industrial production stays below the 2019 levels, then 0.3% growth becomes impossible. In this case, a 0.3% growth estimate for 2020 will be replaced by a 1.5% contraction.

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