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30 December 2021

Market Round Up

Things turned sour in Turkish equity markets when the country’s leading stock exchange halted trading on Friday 17th December after triggering its 5% circuit breaker rule. After trading resumed, the benchmark index was over 8% lower, but until now the market has been protected from the chaos engulfing the country. After a protracted currency crisis, investors were willing to own stocks, betting that a weaker Lira was good for exporters. Even after the fall, the Turkish market remains in positive territory, up by over 40% this year in local currency terms. That may sound like good news, but in Dollar terms, it has fallen by 36%.

The falls continue as the Turkish Lira fell a further 7% to an all-time low, with the country’s central bank lowering interest rates despite an annual inflation rate reaching an all-time high of over 20%. On Monday 20th December the Lira fell a further 6%, but since then has recovered all its month-long rapid depreciation.

These kinds of swings are unusual in currency markets. The appreciation came after the President Recep Tayyip Erdogan announced a scheme aimed at encouraging the country’s savers to hold their money in Lira by offering to make up for losses incurred by holders of Lira deposits should its declines against other currencies exceed interest rates promised by banks. After the rate cut, Turkish leadership announced raising the minimum wage in the new year by 50%. While this may be good social policy, it adds further inflationary pressure on the country by creating a feedback loop between inflation and wages.

As the inflation rate increases, minimum wage plays catch up, but the increase in minimum wage creates more inflation… and so on. According to the Turkish government, devaluing its currency will make the country’s exports cheaper and foreign consumers will buy more Turkish products. While this may be true to some extent, it comes with heavy costs. Turkey relies heavily on imports and thus depreciating Lira becomes a double-edged sword for the economy. Turkey is heading in a similar direction to Venezuela and many economists are keeping close eyes on what unfolds next for the country.

In the UK, the country’s financial regulatory bodies fined multiple banks for negligence, false reporting and poor standards. The month started with NatWest getting fined £265m for money laundering failures. NatWest was found guilty of failing to prevent a £363m alleged money laundering scheme that included £700,000 being carried through a shopping centre in black bin liners.

Earlier this month was HSBC, Standard Chartered and Metro Bank’s turn. The Financial Conduct Authority fined HSBC £64m for serious weakness in its money laundering controls over an eight-year period. Between March 2010 and March 2018, the bank had multiple Anti Money Laundering (AML) failures. The Prudential Regulatory Authority (PRA) fined Standard Chartered for frequent, incorrect reporting of key liquidity metrics. The fine of £46.5m is the largest ever handed down in a case where PRA acted alone as the only enforcing body. Finally, Metro Bank was fined over £5m for failing in its financial reporting between 2016 and 2019. The fine was reduced from £7.7m because of the bank’s willingness to cooperate.
 
 
Market Round Up
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