A large share of Turkish fund outflows stemming from a September rout moved into bank deposits, according to Bof A Securities Inc. September outflows across Turkey's electronic fund platform Tefas totaled some 743 billion liras ($15 billion), according to Bof A Securities economist Hande Kucuk. The full mutual fund universe was gauged through Sep. 16 with 131 funds excluded afterward, Kucuk wrote in a research note on Monday, referring to funds that the market regulator had ordered into liquidation. Bank deposits increased by around 950 billion liras between Sep. 1 and Sep. 29, Kucuk wrote, adding that 884 billion liras came from corporates. Of the increase in corporates' deposits, 63% was in liras and 37% in FX, which is "broadly in line with recent dollarization trends," Kucuk wrote.
A funds crisis in Turkey led to hundreds of billions of liras fleeing investment funds in September and sparked worries about a dollarization spike, which would threaten the currency stability critical to Turkish officials' inflation fight. Dollarization was "contained" last month, however, Kucuk wrote. Bof A estimates a $1.7 billion increase in residents' total FX-linked assets. A third of the Turkish central bank's estimated $9.5 billion in net FX sales in the four weeks to Sept. 25 went to meet residents' FX and gold demand, "with most of the remainder reflecting foreign outflows through portfolio and swap channels," Kucuk wrote.
The firm anticipates reserve pressures remaining manageable and doesn't see a "meaningful change in the current pace of lira depreciation." Goldman Sachs Group Inc said last week that data through September suggest roughly half of the money market outflows in Turkey went into FX and gold deposits domestically. According to Kucuk, "Outflows were initially concentrated in money market funds before broadening to other funds categories later in the month."
Source: Bloomberg Markets · Summarized by HeadlinesBriefing