Turkey’s Ascension To Investment Grade

Turkey received its first investment grade rating on Monday, November 5, from Fitch Ratings. Business Monitor International (BMI) has been saying that Turkey was on track for investment grade as far back as 2008, and in July this year we turned bullish towards all things Turkish, as we expected ‘investment grade status being bestowed on Turkey by at least one of the major credit ratings agencies in the next three-six months’.

Why Now?

The reason for the upgrade is that Turkey’s economic imbalances – too much consumption, not enough production, and a massive current account deficit – are unwinding. The country is not there yet, but if the current trend continues in line with our forecasts, another ratings agency is likely to follow suit over the next three to six months (which would mean that Turkey officially becomes investment grade).

What Does It Mean For Our Financial Market Views?

This news has been very positive for BMI’s asset class strategy views (FX, Fixed Income and Equities). Indeed, Turkey has been the only country for which we have had bullish views on every asset class over the past few months, and we believe the gains are not over yet.

It also helped our bullish view of the Turkish lira against the US dollar which we initiated two days before the Fitch announcement. Right now, we see potential for short-term consolidation, but we still like the lira over a long-term time horizon.

One of the main drivers behind our macro view of economic rebalancing was down to our Autos team. They had been highlighting increasing investor interest in Turkey as a manufacturing hub, which supported our view that Turkey was moving away from a consumption-based growth model towards one more focused on investment and exports.