Azernews.Az

By Bloomberg

Turkish lenders are poised to rally if policy makers lower interest rates next week, making them a top stock pick, according to the money manager who handed investors the third-biggest returns in the past year.

“Banking shares are the ones that will benefit the most from a central-bank rate cut,” Mehmet Gerz, chief investment officer of Istanbul-based Ata Invest, whose equity fund has returned more than 50 percent over the past 12 months, said by phone. That’s the third-strongest showing among 83 peers tracked by Bloomberg.

The Borsa Istanbul-Banks Index has gained 1 percent so far this year after an increase of 30 percent in 2014, taking 12- month estimated earnings to 8.5. That compares with a multiple of 10.4 for Turkey’s benchmark Borsa Istanbul Index. The central bank is under pressure from the government to reduce borrowing costs after economic growth slowed, unemployment rose and household demand remained weak.

“Our central bank needs to support growth,” Gerz, who oversees 1.4 billion liras ($571 million), said by phone.

Policy makers will reduce the overnight lending rate, or the top end of its interest-rate corridor, on Feb. 24 according to nine of 14 analysts in a Bloomberg survey.

Five expect a 50 basis-point cut, while two see a reduction of 25 basis points and two project 75 basis points. Another five analysts don’t anticipate a change.

Bigger Cuts

The move will determine banks’ credit and deposit rates, Gerz said, adding that Ata remains overweight on Turkiye Is Bankasi, Turkiye Halk Bankasi, Turkiye Vakiflar Bankasi and Yapi ve Kredi Bankasi.

The central bank lowered its benchmark rate by half of a percentage point to 7.75 percent in January, with President Recep Tayyip Erdogan saying bigger cuts were necessary.

Governor Erdem Basci pledged to convene the Monetary Policy Committee on Feb. 4 to potentially lower borrowing costs if data showed inflation fell by 1 percentage point last month. He called off that meeting after consumer prices failed to meet the requirement.

Cement shares may also prove to be attractive as the government is set to boost spending before a parliamentary election in June, according to Gerz. Bolu Cimento Sanayii AS and steelmaker Kardemir are poised to benefit the most, he said.

According to Turkey’s 2015 budget, total spending is projected to rise to 472.9 billion liras from 448.4 billion liras last year.