Emirates NBD stock gets a boost via the Turkish lira

In line with global trends, the DFM gained 1.27 per cent and ADX closed higher 0.8 per cent on Monday (November 23). The rally on DFM was powered by a 2.43 per cent gain for the Emirates NBD stock.

Another coronavirus vaccine trial, this time from Astrazenca, helped offset concerns over soaring case numbers. The company announced that their vaccine trial has had a 70 per cent success rate. While on the face of it Astrazenca’s efficacy rate comes across as disappointing, it is an average, with one dosing regimen achieving a 90 per cent efficacy rate and another a 62 per cent efficacy.

The 90 per cent efficacy rate was achieved by a combination of half dose, followed by a full dose a month later. The announcement of a successful Phase 3 trial from different vaccine companies has helped buoy UAE indices. DFM and ADX are trading above the 50-, 100- and 200-day simple moving averages on the charts, which is a sign of bullishness.

Emirates NBD has rallied by more than 10 per cent in November, buoyed by a rally in the Turkish lira as it has substantial operations in Turkey. The US dollar too has fallen against the Lira by more than 11 per cent from its highs in November.

The lira's momentum in recent days is more due by the country to economic orthodoxy. Turkish Central Bank’s latest 475 basis point interest rate hike to 15 per cent is backed by President Recep Tayyip Erdogan, who said that rates will come down once inflation is under control.

Previously, the President had held the absurd belief that higher interest rates fuel inflation. Needless to say, the lira suffered as a result. The dollar has rallied 406 per cent against the currency since the beginning of this decade under Erdogan’s tenure. Nonetheless, the tide might be changing now and political backing can sustain the recent momentum in favor of the lira.

This is good news for Emirates NBD which derived almost 35 per cent of its revenue from its Turkish subsidiary, Deniz Bank, in the latest quarter. The subsidiary accounts for nearly one-fifth of Emirates NBD profit.

An economic revival of Turkey can be good news for Emirates NBD and can be a fundamental tailwind for the bank and its share price. The Dubai headquartered bank took a bet when no one was willing to put money into Turkey, but the move might help it reap rich dividends in the future. Fortune favors...

- Vijay Valecha is Chief Investment Officer at Century Financial.