Worsening investor sentiment puts pressure on Turkish businesses

Originally appeared on Bosphorus Consulting on 13 January 2014

Recent events have reminded us that investor sentiment in Turkey is heavily influenced by perceptions of political risk. Domestic upheavals, therefore, can affect the economy with alarming speed, especially given the country’s heavy reliance on foreign investment. The ongoing political crisis in Turkey has brought renewed attention to the country’s vulnerability to changes in capital flow, as Fitch Ratings remarked upon in a research note on 7 January 2014.

Turkish foreign exchange risk also negatively affects investor sentiment and adds to the growing list of vulnerabilities for Turkish companies. The Economist writes (“The mask is off“, 11 January 2014) that despite the Central Bank’s efforts, the Lira continues to steadily decline against the Dollar, noting with reference to the Istanbul IFC (international financial capital) project, that there is currently little incentive for international financial firms to come to Turkey.

Now is certainly not a good time for a Turkish company’s image to be in doubt. Muharrem Yilmaz, president of the Turkish Industry and Business Association (TÜSİAD), recently warned that, “Turkey is losing value.” Moreover, with the marked decline in direct foreign investment into Turkey, highlighted recently by The Financial Times (“Clash of Values“, 13 January 2014), and a tightening US monetary policy, Turkish companies will have to work hard to adapt to these new realities.

In light of Turkey’s current realities, Turkish companies will have to recalibrate their approach and bolster their ability to engage internationally. While the current climate poses many challenges, it also presents clear opportunities for fine tuning.

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