This is why Turkish stocks are cheap
A perfect storm of sales recession and peak leverage are threatening Turkey's economy
Turkish financial news outlet Para Analiz, writes this week that Turkish corporate profits continue to slump against a backdrop of troubling macro indicators.
Despite positive revisions to the county’s GDP figures, a debt-fueled boom in consumption and construction activities has led to a massive credit build-up. Notably, Turkey’s non-financial corporate debt has risen to 83% of GDP, compared with an emerging market ex-China median of 50%.
Domestic sales have also plummeted outside of the financial sector, to an average of 8% for 2012-2016, versus twice that from 2005-2011.
This perfect storm of diving sales on top of soaring corporate leverage, led rating agencies to cut Turkey’s rating to junk level, as Turkish companies’ debt servicing capacity has been severely impaired.
Whatever the outcome, Para Analiz concludes that the odds of a looming deleveraging process leading to another financial mess have likely grown higher in recent months.