Flashnote Global Research Macroeconomics The impact of gold on trade and growth went from being a large gold exporter in 212 to a large importer in 213 A closer look at the data shows that when gold trade is excluded, total export growth has picked up pace so far in 213. Exports to the MENA region are slowing, however consumes imported gold, while domestic production is small. So the gold impact on headline GDP growth is negligible Looking for the underlying trends in trade performance Sharp swings in gold trade have made it difficult to see the underlying picture in s trade performance recently. Historically, has been a large importer of gold: between 21 and 212 it imported, on average, 181 tonnes of gold per year, but domestic production has been limited, rising from around 1 tonne in 21 to an estimated 3 tonnes in 212 (Chart 1). 2 October 213 Melis Metiner Economist, HSBC Yatırım Menkul Değerler A.Ş. +9 212 376 4618 melismetiner@hsbc.com.tr View HSBC Global Research at: http://www.research.hsbc.com Issuer of report: HSBC Yatirim Menkul Degerler A.S. Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it In 212, however, became a large net exporter of gold. Financial turmoil in Iran created real demand for the safe haven asset, and exported USD6.bn of the metal to the country, nearly half of its total gold exports for that year. This year, the trend has been reversed. has stopped its precious metals trade with Iran as a result of expanded economic sanctions. Consequently, gold exports in the first eight months of the year were only USD2.8bn, down from USD13.3bn in 212 as a whole. Meanwhile, Turkish households, which had drawn down on their gold holdings in 212, are now restocking, pushing gold imports to an all-time high. In the January-August period, gold imports reached USD13.6bn, significantly higher than in the previous years (Charts 2 and 3). What is the impact of gold trade on s overall trade balance and on its trade with the MENA (Middle East and North Africa) region? In 212, s trade deficit came in at USD84.1bn, or 1.7% of GDP, with the USD.7bn gold surplus shaving.7pp off the total deficit. In the first eight months of 213, s 12-month rolling trade deficit reached USD94.6bn, or 11.% of estimated GDP. Excluding gold, the deficit would have been 1.2% of GDP (Chart 4).
2 October 213 This year, export growth has been fairly lacklustre, despite the sharp lira depreciation since late May. After rising by 13.% in 212, exports were down by.% y-o-y in the first eight months of 213. But excluding gold trade, export growth has picked up the pace a little, from 4.3% to 6.6% y-o-y (Chart ). In 212, Turkish exports to the MENA region rose by 49.8% in annual terms, but this performance was artificially boosted by sizeable gold exports. Excluding the gold trade entirely, Turkish exports to MENA were up by 19.% in 212 and by 4.7% in the first eight months of this year (Chart 6). On the imports side, total imports rose by 6.3% y-o-y in the January-August period, after falling in annual terms last year. Excluding gold, however, imports are up by only 1.7% this year, from -2.4% in 212. The gold effect on consumption The total stock of gold in is sizeable we estimate it is close to USD129bn or 2,187 tonnes as of the end of last year (Chart 2). This is for cultural and economic reasons. Culturally, gold has always been a common way to save in and is frequently given as a gift in coin form. Economically, s inflationary past has made gold a good store of value. As Chart 7 shows, single-digit inflation in is a relatively new phenomenon. As recently as ten years ago, it was not uncommon for Turkish residents to look to preserve their wealth by buying gold, hard currencies or durable goods. This tendency, along with the recent increase in gold imports, raises an interesting question. Have gold purchases by residents provided a boost to household spending figures in the first two quarters of the year? There is no official data available on consumer spending on gold alone, but in national accounts, gold and jewellery purchases fall under the category of miscellaneous goods and services. As Chart 8 shows, growth in this category significantly outpaced growth in total household spending in Q1 and Q2. In the first half of the year, household consumption rose by 4.2% in annual terms, versus an increase of 17.% in the miscellaneous goods and services category. We do not know for certain whether gold purchases specifically are the primary driver behind the increase in this category. However, it is interesting to note that the sharp rise here comes on the back of a sizeable drop in the gold stock during 212 (of roughly 67 tonnes) and a rapid increase in gold imports in early 213. So will growth slow once households have replenished their gold stock that was drawn down during 212? At the end of 212, s gold stock stood at 2,187 tonnes. 1 We estimate that as of August 213, the stock had increased to 2,392 tonnes. In other words, residents have already replenished their gold holdings (Table 1). But this should have no impact on headline GDP growth for the remainder of the year because households are purchasing imported gold. If they decide to slow or stop their purchases, household consumption would go down, but so would imports, and the cumulative impact on headline GDP growth would be zero. If were a large producer of gold for domestic consumption, the picture would be different: lower gold demand would push down headline GDP growth. In s case however, domestic gold production is expected to reach 36 tonnes this year, according to an estimate from the Ministry of Energy and Natural Resources, which is less than USD2.bn at current prices. 1 To estimate the gold stock, we use CBRT data and methodology. We assume the gold stock in 1984 was zero, primarily because of data limitations. For each year, the gold stock increases by the sum of imports and domestic production volume, while gold exports are subtracted from the running total. For details, please see the CBRT research note: Türkiye'de Altın: Cari İşlemler Dengesi ve Büyüme Üzerine Etkisi by Zelal Aktaş, Altan Aldan, Faruk Aydın, İhsan Bozok, İbrahim Burak Kanlı. 23 October 212. Available at www.tcmb.gov.tr in Turkish. 2
2 October 213 Chart 1. Gold imports versus gold production Chart 2. Total stock of gold in tonnes 3 tonnes 3 tonnes 3, 1 2 2 2, 12 2 2 2, 1 1 1 1, 7 1 1 1, 2 21 23 2 27 29 211 Imports Domestic production 1984 1988 1992 1996 2 24 28 212 Stock in tonnes (LHS) Stock in dollars (RHS), Gold Miners Association, CBRT, Bloomberg, HSBC estimates Chart 3. Gold trade has been volatile recently 1 1 - -1-1 21 23 2 27 29 211 213 YtD Gold balance Exports Imports 1 1 - -1-1 Chart 4 making it difficult to read the underlying trade performance -2-2 -4-4 -6-38.8-41.8-6 -8-71.7-71.2-8 -1-84.1-83.8-1 -89.8-94.6-1.9-11.2-12 -12 29 21 211 212 213 YtD Trade balance Balance excluding gold Chart. Excluding gold, export growth actually gained pace in 213 % Yr % Yr 14 13. 14 12 12 1 1 8 6.6 8 6 4.3 6 4 4 2 2-2 -. -2 212 Jan-Aug 213 Total exports Non-gold exports Chart 6 But exports to MENA slowed sharply % Yr % Yr 6 4 3 2 1-1 -2 49.8 19. 4.7-13.7 212 Jan-Aug 213 Exports to MENA Non-gold exports to MENA 6 4 3 2 1-1 -2 3
2 October 213 Chart 7. has struggled with high inflation % Yr 13 12 11 1 9 8 7 6 4 3 2 1 199 199 2 2 21 Headline CPI % Yr 13 12 11 1 9 8 7 6 4 3 2 1 Chart 8. Gold purchases could be boosting household spending in 213 % Yr % Yr 2 2 1 1 - -1 29 21 211 212 213 Resident household consumption Misc. goods and services (includes gold) 2 2 1 1 - -1 Table 1. Change in s gold stock in 212-213 (tonnes) Gold stock at the end of 212 2,187.1 (+) imports * 23. (+) domestic production ** 24. (-) exports 4. Estimated gold stock as of August 213 2,392.1 * Volume of gold imports is published by the Precious Metals and Diamond Market of Istanbul Stock Exchange. Volume of gold exports is HSBC estimate derived from Turkstat trade data ** The Ministry of Energy and Natural Resources expects domestic gold production for 213 to reach 36 tonnes. January-August production figure of 24 tonnes is HSBC estimate. Source: CBRT, Turkstat, Turkish Gold Miners Association, Istanbul Stock Exchange, HSBC estimates 4
2 October 213 Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Melis Metiner Important Disclosures This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not for publication to other persons, whether through the press or by other means. This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Advice in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice. Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products. The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results. HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis. Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. Additional disclosures 1 This report is dated as at 2 October 213. 2 All market data included in this report are dated as at close 24 October 213, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
2 October 213 Disclaimer * Legal entities as at 8 August 212 UAE HSBC Bank Middle East Limited, Dubai; HK The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; TW HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; DE HSBC Trinkaus & Burkhardt AG, Düsseldorf; HSBC Bank (RR), Moscow; IN HSBC Securities and Capital Markets (India) Private Limited, Mumbai; JP HSBC Securities (Japan) Limited, Tokyo; EG HSBC Securities Egypt SAE, Cairo; CN HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; US HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR Issuer of report HSBC Yatirim Menkul Degerler A.S. Buyukdere Caddesi No: 122 / D Kat:9 Esentepe/Sisli 34394 Istanbul, Telephone: +9 212 376 46 Fax: +9 212 376 49 13 www.research.hsbc.com www.hsbcyatirim.com.tr This document has been issued by HSBC Yatırım Menkul Degerler A.S. (HSBC) for the information of its customers only. If it is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Department of HSBC only and are subject to change without notice. The information, comments and recommendations involved here are not within the scope of investment consultancy. Investment consultancy services are only provided within the framework of the investment consultancy agreement as agreed between brokerage companies, portfolio management companies, banks not accepting deposits, and the customer. The conclusions arrived at here are based upon the preferred calculation method and/or the personal opinions of the individuals responsible for the comments and recommendations, so they may not be appropriate for your financial situation and risk and return preferences. Therefore, any investment decision made only on the basis of the information involved here may not lead to the optimum results. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies and may also be represented in the supervisory board or any other committee of those companies. The information and opinions contained within the research reports are based upon rates of taxation applicable at the time of publication but which are subject to change from time to time. Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-us foreign affiliate. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-us foreign affiliate, the issuer of this report. In the UK this report may only be distributed to persons of a kind described in Article 19() of the Financial Services and Markets Act 2 (Financial Promotion) Order 2. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in the UK. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 34 of the Securities and Futures Act (Chapter 289) ( SFA ) and accredited investors and other persons in accordance with the conditions specified in Sections 27 and 3 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. In Canada, this publication may be distributed by HSBC Securities (Canada) Inc for the information of its customers only. All inquiries by such recipients must be directed to HSBC Securities (Canada) Inc. In Australia, this publication may be distributed by HSBC Stockbroking (Australia) Pty Limited. In Malaysia, this publication may be distributed by HSBC Research (Malaysia) Sdn Bhd. In Korea, this publication is distributed by either The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") or The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch ("HBAP SEL") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act ( FSCMA ). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP SLS and HBAP SEL are regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR. In Japan, this publication may be distributed by HSBC Securities (Japan) Limited. It may not be reproduced or further distributed in whole or in part for any purpose. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 6 117 92 97, AFSL 31737) for the general information of its wholesale customers (as defined in the Corporations Act 21). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 2329). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed Commentary in Canada although other affiliate jurisdictions may term Commentary as either macro-research or research ), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments). This communication is only intended for investment professionals within Article 19 of the Financial Services and Markets Act 2 (Financial Promotion) Order 2. Persons who do not have professional experience in matters relating to investments should not rely on it. HSBC Yatırım Menkul Degerler A.S. is regulated and authorised by the Central Bank of, Capital Markets Board, Ministry of Finance, Takasbank and is a member of Istanbul Stock Exchange, Takasbank (Turkish Custodian Bank) and the Association of Capital Market Intermediary Institutions of. Copyright 213, HSBC Yatirim Menkul Degerler A.S., ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC. MICA (P) 118/4/213, MICA (P) 68/4/213 and MICA (P) 11/1/213 6