WINTER'S FIRST RALLY HAS BEGUN

The JP Morgan global composite PMI which measures the instantaneous pulse of the world economy, has pointed to a monthly growth pace of 3% by climbing from 53.8 to 53.9 in a difficult month.

It is possible for the developed markets to reach new heights in 2014 within a month by taking back the losses incurred since the start of the year. Regarding the emerging markets, the rally is doomed to take an end in March. Furthermore, the U.S. 10-year bond yields will start to move again towards 3%; we can say that the appreciation process of the U.S. dollar against the emerging markets' currencies has been postponed. The gold and the oil will trade in a narrow band for some time. We can say that the first group waits the clarification of China's outlook for the demand while the second waits for the U.S. inflation.

Let's take a look at the downside risks; the rally faces four major obstacles along its way :

Would the Republicans in the U.S. lock the State on the pretext of the federal debt limit which term has once again arrived? We believe that they would not dare to do it for they would receive a terrible beating in the elections of November this year.

ECB does stubbornly not take precautions against deflation while the euro is overvalued. The slight fall of the EU inflation as well as the decline of the PMI of the members other than Germany are significant threats to the markets.

The pessimistic developments concerning the shadow banking in China can change the agenda at any moment. Experts such as Bill Gross suggest to stay away from the Chinese market. It is clear that without the leadership of China, it will be difficult to have a permanent rally in the emerging markets.

 Turkey will go ahead of this rally all along February.We expect an appreciation in the TL and the State bonds for at least 15 days. the ISE will be affected favorably with the drop in the currency and the interest rates but the poor financial results will limit the rally. Unfortunately, the rally is based on three major misperceptions and we do not expect it to be permanent.

There is the local election of March in Turkey.

The AKP won the fight in the internal politics and the vote in local elections will not be affected very much. However, the AKP and the CHP + MHP votes are very close to each other and the AKP's more likely to lose votes in the coming months.

Turkey's economy has not been affected very much by the interest rates as well as by the global and political shocks: she should return to the growth corridor of 3% - 4% in the second half of the year. Turkey has entered into the monetary normalization with an inflation of 8% and a current account deficit of the GDP as 7%.  Even if the political instability and global unrest take an end, the restoration of the balance in the economy will bring along the slow growth.

The political uncertainty will end after the local elections in March; thus the interest will fall, and the TL will appreciate. Political uncertainty may continue even after the presidential election and Turkey can not carry any longer psychologically this devastating fight.

The rally in TL denominated assets will depend on how much of this misunderstanding is pumped by the media and the investments banks upon the investors. But it is likely that some bad surprises are awaiting us in March. A financial seism that Turkey may likely experience in March will probably shake all the emerging markets.