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Vanguard says Erdogan loss would make Turkey bonds loved again


One of the world’s biggest investors sees lots of potential in Turkey’s long-shunned bond market — if only President Recep Tayyip Erdogan loses an election for the first time in 20 years.

Vanguard Group Inc. has been closing some of its underweight positions on Turkey in the run-up to presidential elections in May, said Nick Eisinger, co-head of emerging-market active fixed income at the US fund, which manages about $7.1 trillion in assets.

That puts the firm among investors positioning for the chance that Erdogan’s increasingly unpredictable rein over the $820 billion economy might be nearing an end. Offshore investors deterred by erratic policymaking have pulled more than $60 billion from the bond and equity markets in the past five years, while cutting holdings of lira-denominated assets to the lowest level on record.

“Turkish bonds could be a very profitable trade if Erdogan loses, Eisinger told Bloomberg in an interview from London. “If Erdogan wins, he will likely carry on with the same unorthodox policies on interest rates and credit extension and it’s likely the external funding gap would remain large.

Guided by Erdogan’s unorthodox belief that high interest rates fuel inflation — although economic textbooks say the opposite is true — Turkey’s central bank has kept interest rates artificially low since 2018. The side effects of that policy, which have included soaring inflation, a weak currency and dwindling appeal for lira-denominated instruments, have sent foreigners running.

Foreign holdings of local debt fell from $72 billion in 2013 to $1.4 billion this month, according to data from the central bank. International money managers account for about 35 percent of the ownership of Turkish hard-currency sovereign debt, down from more than 50 percent in January 2021.

Turkey’s total debt market is worth about $320 billion, of which about half is in foreign currencies, according to data compiled by Bloomberg.

Unified Opposition

Earlier this week, a diverse group of opposition parties, calling themselves the “Table of Six, finally announced Kemal Kilicdaroglu, the leader of main opposition party CHP, as their joint candidate to face Erdogan in May. The 74-year-old says his government would quickly undo Erdogan’s policies, return independence to the central bank, and take a more market-friendly approach to the country’s deepening economic problems.

Opinion polls suggest this could be Erdogan’s toughest election yet, with less than half of the electorate saying it’d vote for his ruling AK Party or its nationalist allies. No reliable polls have been published since Kilicdaroglu was selected as the opposition joint candidate.

Bond Rally

Turkey’s dollar bonds have outperformed peers so far this year, with its longest-dated debt gaining 3.6 percent. That compares with a 0.4 percent gain for a Bloomberg index of emerging-market sovereign bonds. Vanguard’s emerging-market debt fund is up 1.2 percent in 2023 and 17 percent over the past five years, outperforming 99 percent of peers, according to data compiled by Bloomberg.

Eisinger says he’d also look at lira-denominated bonds in the event of an opposition victory, as it’d be likely that the lira would be allowed to depreciate. Turkish officials have kept the currency under close wraps for the past six months, ensuring a gradual depreciation that many investors say has left it highly overvalued.

“Credit is one of the better trades in the event of an Erdogan loss, Eisinger said, referring to sovereign debt. “That is because the FX would probably have to weaken under a new administration.

Laurence Bensafi, a money manager at RBC Global Asset Management, says the same could be true of the stock market.

“If we were to see the polling results showing the opposition leading, some foreign investors will come back, she said. “There is a lot of interest right now, but still the uncertainty is high, and investors are performing their due diligence in order to pull the trigger quickly if and when the moment comes.

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Read more:

Turkish election kingmaker wins surprise ruling to get state aid

After 20 years in power, will 2023 end the reign of Turkey’s ‘sultan’ Erdogan?

Earthquake compounds Turkish leader Erdogan’s woes as election nears

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Abu Dhabi Overtakes Oslo for Sovereign Wealth Fund Capital in Global SWF’s First City Ranking

Today, industry specialist Global SWF published a special report announcing a new global ranking of cities according to the capital managed by their Sovereign Wealth Funds (SWFs). The findings show that Abu Dhabi is the leading city that manages the most SWF capital globally, thanks to the US$ 1.7 trillion in assets managed by its various SWFs headquartered in the capital of the UAE. These include the Abu Dhabi Investment Authority (ADIA), Mubadala Investment Company (MIC), Abu Dhabi Developmental
Holding Company (ADQ), and the Emirates Investment Authority (EIA). Abu Dhabi now ranks slightly above Oslo, home to the world’s largest SWF, the Government Pension Fund (GPF), which manages over US$ 1.6 trillion in assets. Abu Dhabi and Oslo are followed by Beijing (headquarters of the China Investment Corporation), Singapore (with GIC Private and Temasek Holdings), Riyadh (home to the
Public Investment Fund), and Hong Kong (where China’s second SWF, SAFE
Investment Corporation, operates from). Together, these six cities represent two thirds
of the capital managed by SWFs globally, i.e., US$ 12.5 trillion as of October 1, 2024.
For the past few decades, Abu Dhabi has grown an impressive portfolio of institutional
investors, which are among the world’s largest and most active dealmakers. In addition
to its SWFs, the emirate is home to several other asset owners, including central banks,
pension funds, and family offices linked to member of the Royal Family. Altogether, Abu
Dhabi’s public capital is estimated at US$ 2.3 trillion and is projected to reach US$ 3.4
trillion by 2030, according to Global SWF estimates.
Abu Dhabi, often referred to as the “Capital of Capital,” also leads when it comes to
human capital i.e., the number of personnel employed by SWFs of that jurisdiction, with
3,107 staff working for funds based in the city.
Diego López, Founder and Managing Director of Global SWF, said: “The world ranking
confirms the concentration of Sovereign Wealth Funds in a select number of cities,
underscoring the significance of these financial hubs on the global stage. This report
offers valuable insights into the landscape of SWF-managed capital and shows how it is
shifting and expanding in certain cities in the world.”

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AM Best Briefing in Dubai to Explore State of MENA Insurance Markets; Panel to Feature CEOs From Leading UAE Insurance Companies

AM Best will host a briefing focused on the insurance markets of the Middle East and North Africa (MENA) on 20 November 2024, at Kempinski Central Avenue in Dubai.
At this annual regional market event, senior AM Best analysts and leading executives
from the (re)insurance industry will discuss recent developments in the MENA region’s
markets and anticipate their implications in the short-to-medium term. Included in the
programme will be a panel of chief executive officers at key insurance companies in the
United Arab Emirates: Abdellatif Abuqurah of Dubai Insurance; Jason Light of Emirates
Insurance; Charalampos Mylonas (Haris) of Abu Dhabi National Insurance Company
(ADNIC); and Dr. Ali Abdul Zahra of National General Insurance (NGI).
Shivash Bhagaloo, managing partner of Lux Actuaries & Consultants, will his present
his observations in an additional session regarding implementation of IFRS 17 in the
region. The event also will highlight the state of the global and MENA region
reinsurance sectors, as well as a talk on insurance ramifications stemming from the
major United Arab Emirates floods of April 2024. The programme will be followed by a
networking lunch.
Registration for the market briefing, which will take place in the Diamond Ballroom at the
Kempinski hotel, begins at 9:00 a.m. GST with introductory comments at 9:30 a.m.
Please visit www.ambest.com/conference/IMBMENA2024 for more information or to
register.
AM Best is a global credit rating agency, news publisher and data analytics
provider specialising in the insurance industry. Headquartered in the United
States, the company does business in over 100 countries with regional offices in
London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

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Future of Automotive Mobility 2024: UAE Leads the Charge in Embracing Digital Car Purchases and Alternative Drivetrains

-UAE scores show highest percentage among the region in willingness to purchase a car
completely online
– Openness to fully autonomous cars has grown to 60% vs previous 32%.
– More than half of UAE respondents in the survey intend to move to hybrid cars during
next car purchase, while less than 15% intend to move to fully electric car.
– UAE sees strong use of new mobility services such as ride-hailing (Uber, Careem, Hala
Taxi)
– The perceived future importance of having a car is not only increasing in UAE but is
higher than any other major region globally, even China

Arthur D. Little (ADL) has released the fourth edition of its influential Future of Automotive Mobility (FOAM) report, presenting a detailed analysis of current and future trends in the automotive industry. This year’s study, with insights from over 16,000 respondents across 25 countries, includes a comprehensive focus on the United Arab Emirates (UAE). The report examines car ownership, electric vehicles,
autonomous driving, and new mobility services within the UAE.

“The UAE is at the forefront of automotive innovation and consumer readiness for new mobility
solutions,” said Alan Martinovich, Partner and Head of Automotive Practice in the Middle East
and India at Arthur D. Little. “Our findings highlight the UAE’s significant interest in
transitioning to electric vehicles, favorable attitudes towards autonomous driving technologies,
and a strong inclination towards digital transactions in car purchases. These insights are critical
for automotive manufacturers and policymakers navigating the evolving landscape of the UAE
automotive market.”
Key Findings for the UAE:
1. Car Ownership:
o Over half of UAE respondents perceive that the importance of owning a car is
increasing, with the study showing the increase higher than any other major
region, including China.
o Approximately 80% of UAE respondents expressed interest in buying new (as
opposed to used) cars, above Europe and the USA which have mature used
vehicle markets

2. Shift to Electric and Hybrid Vehicles:
o While a high number of UAE respondents currently own internal combustion
engine (ICE) vehicles, more than half intend that their next vehicle have an
alternative powertrain, with significant interest in electric and plug-in hybrid
(PHEV) options. Less than 15% plan to opt for pure battery electric vehicles
(BEVs).

3. Emerging Mobility Trends:

o Ride-hailing services are the most popular new mobility option among UAE
residents, with higher usage rates than traditional car sharing and ride sharing.
The study indicates a strong openness to switching to alternative transport modes
given the quality and service levels available today.

4. Autonomous Vehicles:
o UAE consumers are among the most open globally to adopting autonomous
vehicles, with a significant increase in favorable attitudes from 32% in previous
years to 60% this year versus approximately 30% in mature markets. Safety
concerns, both human and machine-related, remain the primary obstacles to
broader adoption.

5. Car Purchasing Behavior and Sustainability:
o The internet has become a dominant channel for UAE residents throughout the car
buying process, from finding the right vehicle to arranging test drives and closing
deals. UAE car buyers visit dealerships an average of 3.9 times before making a
purchase, higher than any other region in the world, emphasizing the need for
efficient integration of online and offline experiences.
o Upwards of 53% of respondents from the region would prefer to ‘close the deal’
and complete the purchase of their car online, which is the highest for any region
in the world.
o Sustainability is a key factor cited by UAE consumers as influencing car choice.
The UAE scored among the top half of regions, highlighting the importance of
environmental considerations.

“Our study confirms the promising market opportunities for car manufacturers (OEMs) and
distributors in the UAE” commented Philipp Seidel, Principal at Arthur D. Little and co-Author
of the Global Study. “Consumers in the Emirates show a great and increasing appetite for cars
while being among the most demanding globally when it comes to latest vehicle technologies
and a seamless purchase and service experience.”
The comprehensive report, “The Future of Automotive Mobility 2024” by Richard Parkin and
Philipp Seidel, delves into global automotive trends and their impact on various regions,
including the UAE. This study is an invaluable tool for industry stakeholders seeking to navigate
and leverage the dynamic changes driving the future of mobility.

 

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