No Bottom for Turkish Stocks as Market Dives Below Key Support

  • 27,000-point mark in dollar terms has been historical support
  • Stocks trading at 18% discount to emerging-market peers

The bottom fell out of the Turkish stock market this week.

The Borsa Istanbul 100 Index closed below 27,000 in dollar terms for a fifth day. The gauge has dropped to beneath that level just four times since 2010, and on each occasion it spent no more than two days under the mark before rebounding, according to data compiled by Bloomberg.

Without action by the central bank to bolster investor confidence, “the sell-off pressure may intensify,” Figen Ozavci, the deputy chief executive officer of brokerage Meksa Yatirim in Istanbul, said by e-mail.

The slump in Turkish equities reflects months of political deadlock, mounting militant violence and an emerging-market selloff that combined to make the lira the third-worst performing currency amid developing nations this year.

Currencies in emerging markets have tumbled in August as investors anticipated the first U.S. interest-rate increase since 2006 and China devalued the yuan. Inconclusive parliamentary elections in June and escalating security concerns have prompted foreign investors to flee Turkish assets, and the country’s stocks have been among the world’s worst performers this year.

Turkey’s stock index last traded below 27,000 in dollar terms in late 2011 when the lira was trading at about 1.9 per dollar, then the weakest on record.

Its valuation fell to a 17-month low of 8.6 times projected earnings for the next 12 months on Friday, an 18 percent discount to the MSCI Emerging Markets Index. The gauge’s 14-day relative strength index dropped to 30.3, just above the threshold that signals to some traders that a security has fallen too far.

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