BofA Document Shows Investors’ Views on Turkey After Meetings With Finance Minister

(Bloomberg) — Efforts to lure disillusioned investors back to Turkey are making slow progress, according to a leaked Bank of America Corp. document that reveals investor reactions to private meetings with Turkish Finance Minister Mehmet Simsek in London.

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Marked “confidential,” the eight-page document summarizes feedback from 23 investors, including a global asset manager with $4 trillion under management, a handful of US and UK hedge funds, and a $700 billion Asian sovereign wealth fund. The comments relate to meetings with Simsek on Oct. 4-5, according to the document, a copy of which was viewed by Bloomberg.

Since being appointed in June to radically overhaul Turkey’s economic policy, Simsek has been visiting investors around the world to try and convince them to reallocate funds to the $900 billion economy. Once a favored emerging-market destination, the country was largely abandoned by foreign investors over unorthodox economic policies that led to a collapse in the lira and runaway inflation.

While many of the investors cited in the report said they appreciated Simsek’s outreach and transparency, few said they would be investing. They cited the magnitude of challenges facing the Turkish economy, continued concerns about political shifts, as well as doubts about whether Simsek and his team would retain the authority to do the difficult work needed.

Encouraged, Daunted

“Encouraged by the change in policy direction but still daunted by the scale of the challenge ahead,” the report says, describing the views of a UK firm with about $500 billion in assets under management. “A potential reversal of policy is their biggest concern,” it says of another, a US hedge fund.

Bank of America declined to comment on the document or how it was released to a wider audience. A spokesperson for Turkey’s Finance Ministry said they weren’t available for comment.

Negative real interest rates were the biggest concern for one UK fund manager that oversees more than $50 billion, while another investor raised concerns over inflation and foreign-currency reserves.

“Structural problems persist in Turkey. It will take time to unwind and won’t be easy,” said a manager of more than $50 billion, according to the document. A US hedge fund expected the currency to weaken even as it noted its appreciation for a build-up in reserves and the minister’s honesty and transparency.

Since the reelection of President Recep Tayyip Erdogan in May, Simsek has overseen a shift toward orthodox economic policy, undoing Erdogan’s preference of relying on low interest rates in the unconventional belief that that’d lead to lower inflation. The central bank started a tightening cycle in June and has raised the benchmark interest rate to 30% from 8.5% since, although it remains well below inflation that last clocked in at 62% in September.

The Turkish lira, on the other hand, has already lost a third of its value against the dollar this year, one of the worst performances among emerging-market currencies. The lira’s depreciation also adds to the challenge of reining in inflation.

‘Too Early’

“At this stage Turkey remains slightly behind the curve and therefore it seems too early to re-invest,” Bank of America reported one hedge fund manager as saying. “The Minister says all the right things and is excellent with investors, but between now and the local elections there may be a slowing down/halting of the adjustment process.”

That comment echoed concerns expressed by several other investors over local elections in March and whether the policy shift would be sustained.

A US firm with more than $2 trillion in assets cited potential “populist measures” ahead of the election as a reason for going underweight for the next three to six months. Another US hedge fund said it needed to see that orthodox policies were “entrenched” before getting involved.

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Many of the views seemed to be informed by previous experience in Turkey, when turns to economic orthodoxy were cheered by investors, only to be undone shortly after. In the last attempt to return to conventional policies three years ago, former governor Naci Agbal raised the key policy rate sharply. Erdogan fired him after four months.

“Risks remain but hopefully the Minister will remain in his position for long term,” the document said, citing a US firm with $1.5 trillion in assets as saying, in reference to Simsek.

–With assistance from Beril Akman and Firat Kozok.

(Updated with lira’s performance this year in 10th paragraph.)

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