Turkey’s cold is US pneumonia
Posted by meb at March 18th, 2008
Turkish stocks fell dramatically yesterday and bonds and the Turkish lira (YTL) also plunged after prosecutors filed a case to shut down the governing party and ban the prime minister and president from holding office. However, analysts said the slump owes much to the turmoil on international markets.
The benchmark IMKB-100 index fell 7.46 percent yesterday. The YTL had its steepest decline in almost two years against the euro, falling as much as 2.2 percent to 0.50354 per euro as of 5:00 p.m. The fall against the U.S. dollar was nearly 1.7 percent, down to 0.79316 per dollar also as of 5:00 p.m. Yields on benchmark domestic bonds rose 80 basis points to 18.57 percent.
The fluctuation in the stock market is, in essence, a consequence of the “exceptional precautions” taken by the U.S. Federal Reserve, said İnan Demir, economist for Finansbank. Still, “the depreciation of the YTL against the euro is even larger” than that of the U.S. dollar, Demir told the Turkish Daily News.
“The markets may be stabilized, if the Fed pledges unlimited liquidity,” he said. “The last announcement by the Fed put the liquidity limit at $200 billion. The next step should be unlimited liquidity.”
“Global markets are already very negative, and now on top of that we’ll get an even stronger reaction to the closure case,” said Tolga Kotan, who helps manage about $1 billion in Turkish assets at Finans Asset Management in Istanbul. “There’s a significant risk that the AKP [Justice and Development Party] will be closed down,” he told Bloomberg.
“Pressure may continue in the stock market,” said Banu Kaya, analyst at Eczacıbaşı Securities, to daily Hürriyet. “The IMKB-100 may fall down to the 38,200 mark. It is likely to decline toward 36,000 in the medium term.”
“The lawsuit against the AKP may last up to three months,” said Erhan Topaç, from Gedik Investment. “The presence of such a case lends Turkey’s economy a peculiar risk.”
Dependency on foreign capital:
Turkey’s $650 billion economy has grown an annual average of about 7 percent under AKP governments since 2002. Turkey has attracted about $42 billion in foreign direct investment in the last two years, more than in the country’s history. That money has helped finance a current account deficit that’s widening as the cost of energy and other commodities rises.
“It’s a huge problem given the state of global markets and Turkey’s need for external financing,” said Wolfango Piccoli, an analyst at Eurasia Group in London.
Turkish markets have already been hurt by the global credit crunch. The IMKB-100 stock index is down 30 percent this year.
Ceylan Giyim and Ceytaş Madencilik were the stocks with the most depreciation yesterday, falling 13.77 and 12.98 percent respectively.
The currency decline extends the YTL’s loss for the year to 14 percent against the euro and 8 percent against the dollar. The currency may fall further, said Lars Christensen, a senior analyst at Danske Bank in Copenhagen. “It would be a miracle if the YTL were to remain resilient in the current environment,” Christensen said. “A fairly large correction, perhaps of the order of 2006, may be around the corner.” The YTL fell as much as 23 percent against the dollar in May and June 2006 as investors pulled money out of emerging markets on expectations of higher interest rates in the United States.
Source: Turkish Daily News
Related posts: