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Turkey Stocks Cut at JPMorgan, Morgan Stanley Reduces Banks

Turkish stocks were cut to “underweight” in the regional research portfolio of JPMorgan Chase & Co. and Turkish banks were lowered to “equal-weight” at Morgan Stanley.

A new central bank policy to change interest rates on a daily basis “introduces significant uncertainty and volatility” and “is negative for the stock market overall and may hurt the bank sector in particular,” JPMorgan analysts including David Aserkoff said in an e-mailed report today.

Given the “uncertainty and volatility in interest rate policy,” Aserkoff said, “we cannot see investors having enough comfort and security to get long Turkish stocks.”

The main ISE National 100 share index gained 1.5 percent 56,319.92 at 11:07 a.m. in Istanbul. Turkiye Garanti Bankasi AS (GARAN), the biggest listed bank, surged 3.6 percent to 6.36 liras.

The country’s banks were also cut to “neutral” from “overweight” in Morgan Stanley’s emerging markets portfolio, a report by analysts Magdalena Stoklosa, Samuel Goodacre and Tevfik Aksoy said today.

Central Bank Governor Erdem Basci said yesterday he was withholding funding for banks at the 5.75 percent benchmark one- week rate, forcing lenders to pay as much as 12.5 percent through overnight borrowing. The policy allows the bank to switch between the rates and gives it flexibility enjoyed by “no other bank in the world,” Basci said, as he moves to strengthen the lira and control inflation.

The central bank re-introduced the one-week repo lending today, offering banks as much as 8 billion liras.

JPMorgan said it now “strongly” prefers Russian stocks to Turkish stocks. The Turkish central bank’s policy will affect banks especially, it said.

“We expect that high and volatile rates could bring 2012 earnings forecasts significantly lower,” the report said. “We worry that foreign outflows on the back of the reversal in monetary policy will drive underperformance.”

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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