Worst-case scenario: Dollar might skyrocket to YTL 1.50
Posted by meb at May 27th, 2008
Amid a global credit crunch that stemmed from the U.S. subprime mortgage crisis and growing domestic concerns over the closure case against the ruling Justice and Development Party, or AKP, the U.S. dollar may climb to YTL 1.50 in the upcoming period, a recent survey has revealed.
Turkish capital and money markets are basing their game plans upon three scenarios, according to the views of 20 analysts surveyed by business daily Referans.
The Istanbul Stock Exchange’s benchmark IMKB-100 index may deteriorate to 28,000 points, according to the most pessimistic scenario, based on the assumption that the AKP will be shut down and Prime Minister Recep Tayyip Erdoğan and President Abdullah Gül will be banned from politics. The upper limit for interest rate is 25 percent, according to this scenario.
The second scenario, based on the assumption that the political leaders will not be banned although the AKP will be closed down, foresees that the bourse will float between 36,002 and 38,000 points.
The optimistic scenario, which is based on the assumption that the AKP will not be closed, but Treasury aid will be revoked, envisages that the IMKB-100 index may not surpass 48,000 points. The dollar may vary in the range of YTL 1.10 and YTL 1.20, while compound interest rate for bonds is expected to float between the 18 and 19 percent level.
Index forecasts
Some 31.5 percent of the analysts agree on the worst scenario, and expect the IMKB-100 index to float between 34,001 and 36,000. The index is not expected to drop below 28,000 even in the worst scenario. However, in the most optimistic scenario, the index is expected to hover between 44,001 and 46,000 points.
While the dollar may float between YTL 1.30 and YTL 1.40, according to the worst-case scenario, which constitutes 40 percent of the predictions, in the second scenario dollar floats at the YTL 1.21 - YTL 1.30 levels. The forecasts for the optimistic scenario curl around YTL 1.10 and YTL 1.30. In a worst-case scenario, the interest forecast is 22 to 23 percent, while it is 20 to 21 percent in the second scenario. The optimistic scenario foresees the interest rate to float between 18 and 19 percent.
Political risks are high in the domestic market, said Muhittin Küley, manager at research department of Orion Investment. “Unless the picture amends in favor of Turkey, investors will seek an opportunity to leave the stock market even if there is a positive wind in foreign markets. Finding another formula rather than the closure of the AKP would be positive for the markets.” Inflation and current account deficit will continue to exist on Turkey’s agenda, Küley said, adding an upward movement at the IMKB will be limited until the outcome of the closure case against the AKP is known.
Foreigners do not expect closure
The stock market has begun to price the closure case against the AKP, said Atilla Esen, an analyst at Fortis Yatırım. “A decline or complete removal of political risks may compensate the damages,” he said. “I do not think foreign investors expect the AKP to be erased altogether,” said Esen, adding that political tension creates pressure on the markets.
Markets have started to price domestic politics, said Yavuz Akpınar, domestic markets manager at Alternatif Invest. Markets are more reluctant and weak during summer months, he said adding that global inflationist pressures may climb in July. Price hikes in commodities and oil may continue to put pressure on inflation for the next six months or year, said Akın Cihan Ateş, dealer at Anadolubank.
source: Turkish Daily News
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