BY ALAATTIN AKTAS
Foreigners are pulling their assets out of Turkey every day. I don’t mean houses when I say assets.
Housing investment is irrelevant to my point. Foreigners’ house buying only helps us to obtain FX (foreign exchange) inflow. Moreover, these purchases raise prices in the country. It’s also not clear how many citizenships we have conferred to those who bought homes.
I mean that the foreigners who have invested in Turkey are leaving, those foreigners who made the foreign direct investment (FDI) and portfolio investments.
Both acquiring a readymade facility in Turkey and creating a facility from scratch are considered FDI. Of course, creating a facility from scratch is the preferred option in terms of new production, employment, taxes, exports, and new contribution to growth.
This hasn’t happened much recently and existing facilities were sold to foreigners.
Moreover, FX is brought in for the capital increase of established foreign capitalized companies. This is included in the FDI item in terms of the balance of payments, but there is no new investment.
FDI, especially in the services sector, has exited Turkey through the transfer of shares in the recent period. Although Turkey is a country with a high-profit potential, we have to consider why foreigners turn their back on such potential.
Portfolio investments, meanwhile, basically consist of equities and government debt securities (GDS). Foreigners have tended to exit from Turkey in this area since the beginning of the year. The detailed data on Borsa Istanbul already shows that the share of foreigners in equities has hit a historic low.
Buying equity and GDS from Turkey seems to be profitable for foreigners. But why aren’t they interested? Do they see a risk? If yes, then what is that risk?
The uncertainty of our economy.
Investments can be made, and FX will come back, if the return obtained from the FX equivalent TRY bought today isn’t wiped away by the FX rate hike. But what if the reverse happens? Can anyone really predict what will happen with FX rates in Turkey?
Foreigners’ equity and GDS outflows from Turkey totaled USD 136m and USD 128m, respectively in the week ending on October 7, according to the market price and FX movements adjusted data from the Central Bank.
Although foreigners are exiting, there is also a bright side. Soon, they won’t even be able to exit because they won’t have any more GDS to sell. The amount of GDS held by foreigners totaled USD 1.93bn as of October 7.