Turkey's Turnaround Story Masks Discontent

Turkey's efforts to attract foreign investors are finally paying off.

A year since the country moved away from unconventional policies prioritising economic growth over price stability, once-jaded investors are beginning to believe in the rationality of the economy under the guidance of Finance Minister Mehmet Simsek, who has credibility in the markets. Officials say "the worst is over" for inflation, with monetary policy now restrictive and the benchmark rate at 50%. The government is also preparing for more fiscal tightening.

But any great turnaround story in emerging markets inevitably has a flipside. Consumers worry that price increases will outpace their incomes while higher borrowing costs burden households. Elif Bulut, a 54-year-old secretary in Ankara, says that ordinary people are forced to "swallow the bitter pill."

Growing discontent over the decline in disposable incomes could prompt President Erdogan to reconsider the social impact of his policies. Erdogan is known for his overall hostility to high borrowing costs. Investors see a risk in premature rate cuts.

Another potential issue is whether the government will announce an interim hike in the minimum wage next month. Doing nothing would signal to investors that policymakers are committed to curbing inflation above 75% in annual terms last month. However, a raise would provide temporary relief for ordinary Turks.

Chart of the Week

Saudi Arabia has overtaken China as the most prolific issuer of international debt among emerging markets. Data for new bond sales by governments and corporations this year reveal the kingdom is borrowing rapidly as global debt investors back Crown Prince Mohammed bin Salman's Vision 2030 plan.

Top EM Bond Sellers

Saudi Arabia has become the top seller of bonds in emerging markets this year. Bond sales from Saudi Arabian entities have increased by 8% this year, with the government accounting for more than half of this.

The Slant

Attacks by Houthis at sea demand a stronger response writes James Stavridis for Bloomberg Opinion. There is sufficient firepower to cripple the Iranian-backed proxy group, but the will to do so is needed.

Need to Know

Shift in focus: Prime Minister Benjamin Netanyahu announced that Israel will soon end the intense stage of fighting in Gaza and redeploy some forces to northern Israel, where violence with Lebanon-based Hezbollah has escalated. Meanwhile, some frustrated Israeli business leaders are considering entering politics, holding discreet discussions about forming a new party.

Adnoc's pursuit: The Abu Dhabi oil giant has formally told Covestro it’s prepared to boost its takeover bid for the German chemical company to about $12.5 billion, moving closer to what could be the energy giant's biggest-ever deal.

Private equity deal: A consortium led by Brookfield Asset Management has invested in GEMS Education, a Dubai-based family business founded by Indian immigrants who turned a single school into one of the world's largest private education providers.

Masdar's acquisition: The UAE renewable energy producer agreed to buy Greece's Terna Energy in a $2.6 billion deal to boost its European capacity.

ADIA's new hire: Abu Dhabi's largest wealth fund enlisted the finance chief of a JD.com unit to help oversee its private equity investments in China as the United Arab Emirates increases its bets on emerging markets.

Extreme heat: Saudi Arabia reported more than 1,300 pilgrims died during the annual Hajj pilgrimage as temperatures reached their highest levels in two decades. Neighbouring Kuwait has warned of increasing power cuts as brutal heat drives demand higher.

Six candidates: Iranians will elect a new president on June 28, following the death in a helicopter crash last month of Ebrahim Raisi. Most candidates are anti-US hard-liners, but a lone reformist candidate, former Health Minister Masoud Pezeshkian, leads a new poll.

Wealth haven: According to the Henley Private Wealth Migration Report, the UAE remains a coveted destination for high-net-worth individuals globally, with a projected net inflow of over 6,700 millionaires in 2024. However, costs are rising too. Dubai was ranked the 15th most expensive city globally for expatriates in Mercer's 2024 Cost of Living report.

Final Word

Dubai's real estate market continues to defy predictions of a slowdown. Home values have risen for 15 consecutive quarters, while rents have climbed for 13 quarters. Single-family homes, known locally as villas, now rent an average of $96,000 annually.

Many analysts had expected the surge that made Dubai one of the hottest property markets globally to moderate or even drop by early 2024. Those predictions haven't materialised. "I truly thought the market would moderate by now, considering the massive increases over the past few years," said Taimur Khan, head of research at CBRE Group. "But now, as I look at the dynamics, I'm starting to believe that we're unlikely to see much of a drop in the near future."

The surge in prices has dented the affordability of homes across the city. "The market is becoming extremely expensive for mid-income buyers, and that's going to put downward pressure on it," said Prathyusha Gurrapu, head of research and advisory at Cushman & Wakefield Core. "On the other hand, rising rents and falling interest rates will likely encourage new buyers."

The property market's continued resilience could signify Dubai breaking free from its boom-and-bust cycles.

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