Turkey was recently upgraded to investment grade by ratings agency Moody’s. Mark Gem of Clearstream talks about how the development could boost interest in the country’s capital market the role of market infrastructure in attracting foreign investors.
What attracted you to the Turkish capital markets?
MG: Clearstream has been facilitating access to the Turkish domestic capital debt market for nearly 15 years now – the only international central securities depository (ICSD) to so do. A number of factors attracted us to the Turkish market. Firstly, it’s a huge economic market and one strategically placed as a bridge between Europe and Asia. Of course, Istanbul’s ambition to become one of the top 20 financial centers in the world has only been developed recently, but there has always been a thriving investor community with strong ties to Europe and vice versa for many decades.
Recent reforms – which began with banking sector reform in the early 2000s and the currency redenomination in 2005 – kick-started the process that is helping Istanbul to now fulfill its ambition and has maintained our enthusiasm for the market along the way. As a result, the success of our link is in part thanks to increasing customer demand to access this market. The announcement a few weeks ago that Turkey had been upgraded to investment grade confirmed that Turkey is on the right path and we expect investor interest in this market to increase yet further as a direct consequence.
How does your link with Turkey work in practice?
MG: Our link has already been successfully working for the past 15 years. We offer settlement and custody for all asset classes. We upgraded our link last year (with improved cash and settlement deadlines) and switched our local agent so that we are now working in partnership with top-rated Türk Ekonomi Bankasi A.S. (TEB) who operate as our local depository in Turkey and cash correspondent bank (CCB).
We have really seen and supported the Turkish market through thick and thin. In particular, I can well recall the local currency dip in 2005 following the successful redenomination process where we were quickly able to facilitate a sharp increase in investment flow into the market in support of local issuers and the banking community.
What collateral upgrade opportunities exist in the Turkish market?
MG: There’s definitely great potential for developing collateral management services and instruments for the Turkish market – we do see demand for this growing in line with the global trend to use collateral management more to reduce risk.
So we are already committed to extending our collateral management and securities lending services to the Turkish market where possible. It looks like this will help open up opportunities for investors in Turkish lira denominated domestic securities, including government debt instruments.
Comment on the role of ICSDs in boosting the Turkey’s capital markets and attracting more foreign investment.
MG: It is true that an ICSD link can help drive down bond yields since they provide wider counterparty reach and access to greater liquidity allied to which counterparties can trade more securely – the net result being that the value of the bond increases. Reliable and assured access via an ICSD, at the right price, can increase the overall appeal of a market to non-resident investors and provide a viable alternative for issuers to, say, local bank lending. We’ve seen this play out recently in other markets too, such as in Russia.
For further attracting foreign investment, much depends on the efficiency of a market’s financial infrastructure including its domestic settlement system. In some comparable markets, for example, we see an increase in investors’ appetite as we advance our new link to a central securities depository. Similarly in Istanbul, there have been some positive market changes recently, which will help us to continue offering efficient settlement services.
In terms of Turkey attracting foreign investment, despite some ups and downs over past years, it’s on the right path to attracting more foreign investment – a trend we are already witnessing and facilitating. Borsa Istanbul for example is growing as an attractive venue for new listings – the number of issuers has grown by 15% since January 2011 and the market capitalization of the equity market has grown by 18.5% over the same period.
GC Friday Interview: Mark Gem, Head of Business Management, Clearstream
Turkey was recently upgraded to investment grade by ratings agency Moody’s. Mark Gem of Clearstream talks about how the development could boost interest in the country’s capital market the role of market infrastructure in attracting foreign investors.