According to a leaked Bank of America Corp. memo that details investor comments to private meetings with Turkish Finance Minister Mehmet Simsek in London, efforts to entice disillusioned investors back to Turkey are moving slowly.
The eight-page document, titled “confidential,” compiles comments from twenty-three investors, including a $700 billion Asian sovereign wealth fund, a global asset manager with $4 trillion under management, and a few US and UK hedge funds. The paper, a copy of which was viewed, states that the comments are related to discussions with Simsek on October 4-5.
Simsek has been touring investors worldwide since taking office in June with the goal of drastically reforming Turkey’s economic strategy and persuading them to transfer money to the country’s $900 billion GDP. Once a popular destination for emerging markets, the country saw a significant decline in foreign investment due to unconventional economic policies that caused the lira to plummet and inflation to spiral out of control.
Few of the investors included in the report indicated they would be making an investment, even though several expressed appreciation for Simsek’s outreach and transparency. They mentioned the severity of the problems the Turkish economy is facing, ongoing worries about changes in politics, and uncertainties about Simsek and his team’s ability to carry out the necessary hard work.
Inspired by the shift in policy direction but nonetheless intimidated by the enormity of the task ahead,” the study said, summarising the opinions of a UK company managing over $500 billion in assets. About another, a US hedge fund, it states, “Their biggest concern is a potential reversal of policy.”
Regarding the paper and the manner in which it was made public, Bank of America chose not to comment. The Finance Ministry of Turkey was not available for comment, according to a spokesman.
One UK fund manager managing over $50 billion expressed concern primarily about negative real interest rates, while another investor voiced concerns about inflation and foreign-currency reserves.
Turkey’s structural issues are still present. A manager of more than $50 billion stated, “It won’t be easy and it will take time to unwind,” according to the document. Even as it expressed gratitude for the minister’s honesty and openness and for the increase in reserves, a US hedge fund predicted that the value of the currency would decline.
President Recep Tayyip Erdogan was reelected in May, and since then, Simsek has presided over a move away from Erdogan’s preferred course of low interest rates in the improbable hope that this will reduce inflation. The benchmark interest rate was hiked from 8.5% to 30% by the central bank in June, marking the beginning of a tightening cycle. Despite this, the rate is still well below inflation, which last recorded a high of 62% in September.
In contrast, the Turkish lira has underperformed other emerging-market currencies this year, having already lost one-third of its value vs the US dollar. The weakening of the lira makes controlling inflation more difficult.
Before the election, a US corporation with over $2 trillion in assets stated that it was underweight for the next three to six months due to possible “populist measures.” Before becoming involved, according to another US hedge fund, it was necessary to ensure that conventional policies were “entrenched.”
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Many of the opinions appeared to be influenced by Turkey’s past, when investor support for shifts towards economic orthodoxy was short-lived and ultimately reversed. Former governor Naci Agbal significantly increased the main policy rate during the previous attempt to revert to traditional policies, which occurred three years ago. He was sacked by Erdogan four months later.
The letter stated, “Risks remain, but hopefully the Minister will remain in his position for a long time,” referring to Simsek and mentioning a US corporation with $1.5 trillion in assets.