Turkey 0105

Slide1: 

The dollar, emerging markets and Turkey January 2005 David Lubin Director, emerging markets research HSBC London + 44 20 7991 5641 david.lubin@hsbcib.com

USD: back to the average or back to the trend?: 

USD: back to the average or back to the trend?

The current account deficit is at a new record...: 

The current account deficit is at a new record...

...as are the ‘twin deficits’: 

...as are the ‘twin deficits’ 2004

Emerging markets’ surpluses offset the US deficit: 

Emerging markets’ surpluses offset the US deficit

EM fx reserves have nearly tripled in five years: 

EM fx reserves have nearly tripled in five years

Dollar weakness and risk appetite in emerging markets: 

Dollar weakness and risk appetite in emerging markets

Global real interest rates are incredibly low: 

Global real interest rates are incredibly low

Liquidity and fundamentals interact with each other: 

Liquidity and fundamentals interact with each other

How sustainable is the US external deficit?: 

How sustainable is the US external deficit?

Returns on FDI have been higher than payments on treasuries: 

Returns on FDI have been higher than payments on treasuries

Growth in liabilities much more rapid than assets: 

Growth in liabilities much more rapid than assets

Net asset position will weaken sharply...: 

Net asset position will weaken sharply...

The current account will worsen at an increasing rate: 

The current account will worsen at an increasing rate

The Fed is becoming concerned: 

The Fed is becoming concerned “That pattern was contributing to a worrisome further widening of the U.S. trade and current account balances, and the Committee discussed the significance of wide external deficits and various adjustments that might occur in the process of their return to more sustainable levels.” (Fed minutes, bold and underlining added). Adjustments? Faster growth elsewhere? “Still, expectations for foreign economic growth had been marked down somewhat, with adverse implications for U.S. exports and for overall U.S. growth.” Slower growth in the US? “output growth appeared to have regained some traction and that labor market conditions had improved modestly” A lower dollar?.......

HSBC’s fx forecasts: 

HSBC’s fx forecasts Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 EUR 1.33 1.34 1.35 1.38 1.40 JPY 102 100 98 98 98 CHF 1.14 1.13 1.13 1.10 1.09 70 75 80 85 90 95 100 105 110 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 70 75 80 85 90 95 100 105 110 Index Forecasts Dollar trade-weighted, Fed Measure, Major Currencies

Central banks have a “collective action” problem: 

Central banks have a “collective action” problem

EURUSD and risk appetite: “arithmetic” vs “behaviour”: 

EURUSD and risk appetite: “arithmetic” vs “behaviour” Local currency performance vs USD and EUR, H2 2004 -5% 0% 5% 10% 15% 20% 25% Poland Romania Brazil South Africa Hungary Slovakia Korea Turkey vs USD vs EUR

Emerging markets: it’s the dollar, stupid: 

Emerging markets: it’s the dollar, stupid

How will EURUSD affect risk appetite in the future?: 

How will EURUSD affect risk appetite in the future? ? Euro/dollar exchange rate Emerging markets risk appetite Two mechanisms by which higher EURUSD can reduce risk appetite: 1. Through an impact on US treasury market 2. Through an impact on global growth ?

Vulnerability in emerging markets: 

Vulnerability in emerging markets

Is domestic credit growth creating vulnerability? : 

Is domestic credit growth creating vulnerability?

Turkey’s fate: structural change vs cyclical pressure: 

Turkey’s fate: structural change vs cyclical pressure 1985 2002 2002 Greece 70% 75% Czech Republic 61% Ireland 62% 136% Estonia 47% Portugal 56% 68% Hungary 51% Spain 70% 80% Poland 41% Average 64% 90% Average 50% Turkey 2004 28% GDP per capita, PPP terms, % of EU average

2005 will be a test for Turkish FDI: 

2005 will be a test for Turkish FDI

Slide25: 

The dollar, emerging markets and Turkey January 2005 David Lubin Director, emerging markets research HSBC London + 44 20 7991 5641 david.lubin@hsbcib.com