Turkish equities may recover losses suffered after a graft probe rattled markets, as investors bet that the ruling party’s election win and a strengthening currency mean the worst of the recent turmoil is over.
The Borsa Istanbul 100 Index (XU100) advanced 2 percent to 73,946.51 liras yesterday, bringing its gain since the March 30 elections to 7 percent, before declining 0.8% at 11:50 a.m. in Istanbul this morning. The lira has appreciated 4.1 percent since the polls. In dollar terms, the index is close to levels last seen before a series of arrests on Dec. 17 roiled Turkish markets, wiping 10 percent off the gauge in a single week.
Prime Minister Recep Tayyip Erdogan said the win by his AKP party in local elections on March 30 is a sign that the electorate cares more about economic progress than graft allegations against his government. The elections were the first in a series of three polls to take place over 18 months.
“The government proved at the local elections that they can maintain a majority up until the general elections,” Hasan Demir, deputy director of research at Istanbul-based Tera Brokers, said. The restoration of political stability is behind the recent rally, he said by phone on April 7.
Shares of the country’s banks attracted foreign investors in March. Turkiye Halk Bankasi AS (HALKB), Turkiye Garanti Bankasi AS (GARAN) and Akbank TAS (AKBNK) together accounted for more than half of the $621 million of inflows into the primary market, Borsa data show. Turkey’s central bank has signaled that it may pay as much as 3 percent interest on commercial banks’ compulsory reserves held in liras. The regulator’s interest payments “may put an end to a cycle of earnings downgrades for the Turkish banks,” Demir said.
The Borsa Istanbul Banks Index dropped 6.1 percent in the period from the start of the graft probes in December to the March 30 local elections. The lira weakened 8.1 percent in the same period. While the only banker directly implicated in the corruption investigation was Suleyman Aslan, ex-CEO of Halkbank and recently appointed Ziraat Bank board member, the index’s losses tested valuations last seen in 2009. The banks gauge has advanced 8.4 percent since the polls.
Erdogan has dismissed the probe as a plot to destabilize him. Speaking in parliament yesterday he said voters had given him a mandate to “eradicate” his erstwhile allies the Gulen movement whom he holds responsible for the police investigation.
“Comments like this promise to keep political noise heightened in Turkey” said Abbas Ameli-Renani, strategist at Royal Bank of Scotland Group Plc in London. “But I believe the market no longer has the appetite to meaningfully trade Turkish politics until much closer to the presidential elections in August,” he said by e-mail yesterday.
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