Turkish Stocks Head for Biggest Monthly Decline Since 2008 on JPMorgan Cut

Turkish stocks tumbled, heading for the biggest monthly loss since October 2008, after JPMorgan Chase & Co. cut them to “underweight” from “overweight,” citing concern on the current account deficit and banks’ profits.

The main ISE National 100 index (XU100) fell as much as 1,901.26, or 3 percent, to 61,854.09. The index declined 2.1 percent to 62,407.42 at 5:30 p.m. in Istanbul, taking the month’s losses to 9.9 percent. Yields on two-year benchmark bonds rose 7 basis points to 8.97 percent, the fifth weekly increase. The lira fell 0.1 percent to 1.6047.

“The global environment with equity markets under pressure puts capital-importing Turkey under additional pressure,” David Aserkoff, an analyst at JPMorgan, said in an e-mailed report today. He also cited slowing “bank profit growth” and “higher headline consumer price inflation” for the downgrade.

Bank lending is increasing at an annual pace of more than 35 percent even after the central bank raised banks’ reserve requirements four times since December to stem an expansion in loans it says is widening the current account deficit. The gap may expand to 8.7 percent of economic output this year, the Organization for Economic Cooperation and Development said in a report May 25. The higher reserves are crimping profits at banks.

Foreigners “Not Buying”

“The market turned negative after the JPMorgan report,” Orhan Veli Canli, a trader at Is Invest in Istanbul, Turkey’s largest broker, said by telephone. “The outlook for the banking industry is not looking good and despite a fall in prices foreigners are still not buying.”

Turkiye Garanti Bankasi AS (GARAN) lost 2 percent to 6.92 liras. Akbank TAS (AKBNK), part-owned by Citigroup Inc., fell 3.3 percent to 7.14 liras. Turkish banking stocks are equivalent to 40 percent of the main share index’s value, according to data compiled by Bloomberg.

“We would be tempted to trade in and out of banks around key levels, e.g. buying into Garanti bank below 7 liras,” Aserkoff said. “But we would wait for policy clarity before recommending the sector on a medium-term view.”

The current account deficit widened to a record $9.8 billion in March, the central bank said on May 11. Consumer price inflation accelerated to 4.3 percent in April from 4 percent in March, the statistics office said on May 3. The government is due to publish trade data for April on May 31.

Turkish stocks, bonds and the lira also fell after Fitch Ratings lowered Japan’s outlook to “negative” from “stable” citing rising government debt.

To contact the reporter on this story: Aydan Eksin in Istanbul at aeksin@bloomberg.net

To contact the editor responsible for this story Shaji Mathew at shajimathew@bloomberg.net

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