New year, new ambitions for businesses - James Rowbury

Things turned sour in Turkish equity markets when the country’s leading stock exchange halted trading on Friday, December 17 after triggering its five per cent circuit breaker rule.

After trading resumed, the benchmark index was over eight per cent lower, but until now the market has been protected from the chaos engulfing the country. After a protracted currency crisis, investors were willing to own stocks, betting that a weaker Lira was good for exporters. Even after the fall, the Turkish market remains in positive territory, up by over 40 per cent this year in local currency terms. That may sound like good news, but in Dollar terms, it has fallen by 36 per cent.

The falls continue as the Turkish Lira fell a further seven per cent to an all-time low, with the country’s central bank lowering interest rates despite an annual inflation rate reaching an all-time high of over 20 per cent. On Monday, December 20, the Lira fell a further six per cent, but since then has recovered all its month-long rapid depreciation.

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These kinds of swings are unusual in currency markets. The appreciation came after the President Recep Tayyip Erdogan announced a scheme aimed at encouraging the country’s savers to hold their money in Lira by offering to make up for losses incurred by holders of Lira deposits should its declines against other currencies exceed interest rates promised by banks. After the rate cut, Turkish leadership announced raising the minimum wage in the new year by 50 per cent. While this may be good social policy, it adds further inflationary pressure on the country by creating a feedback loop between inflation and wages.

James Rowbury, investment research lead, Redmayne Bentley.

As the inflation rate increases, minimum wage plays catch up, but the increase in minimum wage creates more inflation… and so on. According to the Turkish government, devaluing its currency will make the country’s exports cheaper and foreign consumers will buy more Turkish products. While this may be true to some extent, it comes with heavy costs. Turkey relies heavily on imports and thus the depreciating Lira becomes a double-edged sword for the economy. Turkey is heading in a similar direction to Venezuela and many economists are keeping close eyes on what unfolds next for the country.

In the UK, challenger bank Monzo is starting the new year with big ambitions. The company saw its valuation reaching US$4.5bn with recent investment made by Chinese tech group Tencent. The recent development underlines a rapid recovery in Monzo’s fortunes after a tough start to the pandemic which crushed its valuation and even prompted outside warnings that it could struggle to stay afloat after losses piled up to £130m in 2020. The company has also faced several regulatory setbacks last year, including an investigation by the Financial Conduct Authority over the potential breaches of anti-money laundering laws. In October last year, it withdrew its application for a US banking license after regulators indicated it was unlikely to be approved.

The company has shrugged off the offsets from the past year and is now focusing on providing a wider range of services. It is currently exploring fresh developments, such as a platform for retail investors to invest in stocks. This could include cryptocurrency trading, although these plans are at an initial stage and not yet concrete.

In Yorkshire, Faradion Ltd, a battery technology specialist has been acquired by an international group in a £100m deal. It is officially confirmed that Reliance New Energy Solar Ltd, a wholly owned subsidiary of India-based conglomerate Reliance Industries, has purchased Faradion for a total enterprise value of £100m. Reliance New Energy has pledged to invest £25m as a growth capital to speed up commercial roll out.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.