Turkish stocks headed for their longest losing streak in more than 10 months while government bonds fell as tension escalated in neighboring Iraq and before a Moody’s Investors Service review.
The Borsa Istanbul 100 Index lost 0.3 percent to 78,647.09 at 2:19 p.m. in Istanbul, taking its seven-day retreat to 6.6 percent, the longest stretch of losses since a similar period ended Sept. 30. Turkcell Iletisim Hizmetleri AS slid 1.1 percent as 57 of the gauge’s shares declined. The yield on two-year government notes climbed one basis point to 9.33 percent and the lira gained, trimming this week’s drop to 1.3 percent.
Lira assets, which have come under pressure before the nation’s first direct presidential election this weekend, extended declines after U.S. President Barack Obama authorized air strikes against extremist Islamic militants in Iraq, which shares a border with Turkey. The local currency has fallen 1.3 percent against the dollar this week, the worst performer after the ruble and Brazilian real among 24 emerging markets.
“In a risk-off environment where carry trade unwind is happening, possible military involvement in northern Iraq” affects the lira’s performance, Isik Okte, an Istanbul-based strategist at Teb Investment, said in an e-mailed report. “Unless something changes in the macro picture, we expect negative decoupling to continue” with other emerging markets.
Borrowing in dollars to fund purchases of lira debt lost 1.3 percent this month, second only to the ruble in developing Europe and Africa.
The equity gauge, which is up 16 percent this year, is also facing selling pressure before the statement from Moody’s, which raised the sovereign to its lowest investment grade Baa3 rating in May 2013. It cut the outlook to negative 11 months later.
Moody’s, which cited political uncertainty, lower global liquidity and pressure on external financing for its outlook revision in April, will release a Turkey update today. Economy Minister Nihat Zeybekci said Aug. 5 he would be surprised if the rating company’s assessment was positive, according to an interview on CNBC-e television.
“After Economy Minister Zeybekci’s comments, the perception that maybe a downgrade is coming was created,” Fatih Keresteci, an Istanbul-based strategist at HSBC Holdings Plc, said in an e-mailed report. “Even though we don’t expect a downgrade from Moody’s in any way, such an announcement would take Turkey out of the class of investable economies. The effect on the markets could be very strong.”
Fitch Ratings affirmed its BBB- investment grade rating for Turkey, with a stable outlook, in April, while Standard & Poor’s ranks the sovereign BB+, its highest junk score.