Unemotional Investor 26 June 2013 Money is the most timorous asset. Even the slightest danger or trouble can easily frighten it away. The upheavals connected with Gezi Park have affected markets. And FED’s latest decision will create new fluctuations as well. Markets will need positive messages through this process.

Investors with money have to act unemotionally. It is because whenever they act with feelings, they lose money. Especially those portfolio managers, fund managers, and bankers who do business with money entrusted to them by other people, have to be much more cautious and rapid.

 

In this regard, political risk is a key concern to investors and lenders that increases transaction costs and is often the determining factor in whether investments are made. As such, it impedes governments’ ability to attract and retain investment. Investor perceptions of political risk are heightened by issues like terrorist threats, economic crises, and governments’ desire to control or suppress their civil societies. Turbulent economic and political developments exacerbate concerns about such risks.

 

When we look at the developments in the world and in Turkey simultaneously, interesting results emerge. Turkey’s credit rating has been recently upgraded and the country was raised to “investable level”. For stock traders, good news is always a reason for selling. While the index was expected to hit 100 thousand, profit realizations by professional stock traders and foreign investors followed.    

 

“Everything may get better in the medium term, but when good news appear just sell and watch”
With Turkey’s credit rating upgraded to investable level, news about foreign pension funds and inflow of foreign capital make the headlines. Just when it is said that everything in the garden is rosy, news about the use of excessive force by law-enforcement agencies against an environmentalist action appear. And then wide-scale events break out, but people hear about them not through newspapers and TV channels but through social media like Facebook and Twitter, and foreign news agencies…

 

Those acting with the intent “let’s cover up the events and curry favor with the government” are protested. They are accused first by activists and then by the government. Even the critics of the government acknowledge that misinformation flourished on Twitter and other social media, with incorrect reports that the crackdown had resulted in large numbers of deaths, and digitally altered photos said to be of victims. But the rumors spread, because the established news media deliberately omitted the protests.

 

It is observed in MİT’s preliminary (the National Intelligence Organization) report on the protests that, if media had duly done its part and reported about the events, these upheavals would not have assumed such huge proportions. Curious citizens, who could not get any news, eventually fell prey to very inaccurate information circulating on the Internet… Were all these part of a scheme? Because when we look at the consequences of this mistake, we are led to think there was a perfect scheme behind the events.

 

Our prime minister, who is the most influential person in the eyes of investors, had said in the wake of 2008 financial crisis that “The crisis will pass at a tangent to Turkey.” And it did so. When he said “This time it will not pass at a tangent to us”, it also proved right.

 

Who is supposed to speak to frighten away money?

 

Of course, our dear prime minister…

 

Wrong messages conveyed during the crisis …

 

1) We will bring banks to account…
Private banks have a serious predominance in the stock index. 80 percent of banks that have a free float rate above 50 percent belong to foreign funds. Besides, banks serve a crucial function in the overall economy and any threat to their functioning will have tremendous consequences. That message from the head of the government actually means “Sell these shares.” It brings about deposit outflow from banks. In the end, it may cause investors to withdraw from the stock exchange, the stock market to decline, the dollar and interest rates to go up. If the government does not recognize this, it will pay a high price in lost investments. Moreover, such an act will have long-running effects and inhibit future investment by serving as a reminder of possible risks. Neither Turkey nor any other country can afford this perception.        

 

2) I can hardly keep the 50 percent [of voters] at home…
Even the probability of civil strife risk has unsettled foreign pension funds, foreign direct investors, and money market players about investing in our country. And consequently the expected message about FED’s tightening of monetary policy was given and timid money began to be called back to home. The “brake was put on” the money heading for Turkey. The government’s ambitious plan to turn Istanbul into a global financial center may get negatively affected by even the hint of civil strife and widespread violence. We need to calm down and reduce the tension immediately. 

 

When considering investments, companies assess countries’ investment climates as well as the stability and likely direction of their laws, regulations, and political institutions. Political risk —the probability of disruptions in company operations by political forces and events— is one of the main concerns for corporate investments. Surveys of multinational enterprises have consistently found that political risk is investors’ top concern over the medium term. Political risk is largely determined by uncertainty over the actions of governments and political institutions. Threats stemming from civil unrest threaten to disrupt financial markets and trade.

 

The largest developing economy, Brazil was faced with protests at the same time… What a great coincidence, isn’t it? Provocations have reached their goal. Money was frightened away, beyond measure to boot… Brazilian financial markets faced an extended sell-off, with stocks and the currency approaching four-year lows, as nationwide protests surged. Brazil shows once again how timid investors are and how fast they respond to signs of instability in a foreign market.  

 

Social media get stronger in the absence of media

 

Those pushing the button have now a power that is stronger than even soldiers: Internet. We live in the era of Internet. When media leave the arena, social media become stronger by filling this void. And this facilitates provocation. To become a country where investors can comfortably invest in, judicial and legal system should be very powerful. During Gezi Park upheaval, the impression that “works for the planned construction will begin without waiting for a court ruling” tarnished the country’s image… The biggest loser in this process is Turkish media which did not know what to do. Wary of their extensive investments in other areas, media tycoons hesitated about providing a full coverage of events from the start. They were afraid of falling out with the powerful government. As a result, they chose to turn a blind eye to protests and air instead ostensibly harmless shows. And that was a big mistake on their part. Naturally, a heated debate about the function of media started as the events got more serious. A very simple conclusion can be made after all this debate: Those involved in media should not engage in banking. Those involved in media should not engage in any other business. Media should not have an interest-oriented relationship with the government. If media do not grow stronger, then social media will become even stronger. Isn’t it necessary to make deeper analyses when stopping a girl who grew up under this government and who wrote on Facebook “what is right-wing, after all?” while protesting at Gezi Park?

 

Dear Mr. Prime Minister, wasn’t it Brutus who struck the first blow against Caesar? Beware of those who do not know about Pınarhisar (jail) and who have not passed by Emniyet Mahallesi when a political ban was imposed on you... As you know, we have always told you things that others did not tell. They will continue to tell you pleasing things. And they will fan the flames by doing this. This country has suffered a lot due to the throw of a “copy of Constitution”. We haven’t forgotten those days. While the holy month of Ramadan approaches nowadays, peace and reconciliation will solve every problem. FED’s decision will create new fluctuations. In this process, markets will need positive messages… Inclusive approaches toward protesters and a reconciliatory tone will help deflate the tension and restore peace.