Turkish stocks entered a bear market and the lira was poised for a record low as a rout in emerging markets deepened, adding to pressure on the nation’s assets as it prepares for its second parliamentary election in six months.
The Borsa Istanbul 100 Index of stocks fell 3.3 percent to 71,341.95 at the close, taking its drop since a peak in January to 22 percent. The lira weakened 0.5 percent to 2.9331 against the dollar at 5:40 p.m in Istanbul, a record on a closing basis. The currency is the third-worst performing in emerging markets this year with a 20 percent retreat.
Stocks in emerging markets dropped the most in four years as speculation the slowdown in China is worsening fueled capital outflows and declines in currencies across developing nations. Turkey is headed for a fresh vote after political parties missed a deadline to form a governing coalition, compounding the pressure on Turkish assets battered by more than two months of political deadlock and intensified violence by Kurdish, Islamic and leftist militants.
“Turkey had its internal problems, but this last leg down has more to do with rapidly deteriorating global sentiment,” Kerem Baykal, a fund manager at Istanbul-based Ak Portfoy, said by e-mail. “The only thing that can save the day is a coordinated policy response. It seems as if investors are trying to rush out through the same door all at once and situations like these never end quickly.”
The benchmark index of stocks extended its decline to a sixth day and the lowest since April 2014. Turkcell Iletisim Hizmetleri AS led the retreat, falling 4.8 percent. Akbank TAS, the country’s second-largest lender by market capitalization, fell 2.9 percent to the lowest since March 2014.
“The slowdown in China, global growth and fresh lows in commodity and energy prices continue weighing on investor sentiment,” Ipek Ozkardeskaya, a market analyst at London Capital Group Limited, said by e-mail. Turkish stocks “remain subject to heavy political atmosphere as uncertainties regarding the snap election and geopolitical tensions push investors out,” she said.
The benchmark stock index’s valuation fell to a 18-month low of 8.3 times projected earnings for the next 12 months. The gauge’s 14-day relative strength index dropped to 24.7, below the threshold of 30 that signals to some traders that a security may be oversold and poised to rebound.
The stocks gauge also broke below its 200-week moving average for first time since a graft probe into alleged government corruption sent stocks plunging in December 2013.
“This signals a trend change for Turkish stocks,” Tugberk Citilci, the head of research at Istanbul-based Sanko Investment Securities, said by e-mail. “If the index cannot close above this level, the sell-off may accelerate.”
3 Per Dollar
Pressure is mounting on the central bank to act to bolster the lira after the currency fell to record intraday lows for six consecutive days through Thursday last week. The selloff worsened Tuesday when policy makers kept interest rates on hold for a sixth month and the next day signaled they may not raise borrowing costs before the Federal Reserve.
The lira weakened 2.9 percent last week, and broke through 3 per dollar for the first time on Thursday.
“Once investors start to panic, it’s very difficult to predict the bottom and history would suggest that the market generally overshoots in these times of market stress,” Doug Bitcon, a Dubai-based fund manager at Rasmala Investment Bank Ltd., said by e-mail. “Turkey is caught up in the widespread run on emerging-market currencies compounded by their own political uncertainties. Investors hate uncertainty.”
The yield on 10-year government bonds rose 23 basis points to 10.5 percent, the highest since March 2014. Turkish five-year credit default swaps -- contracts insuring against debt default -- climbed for a 10th day to 296, CMA prices show.
“The lira is not able to run away from the selloff in emerging markets, coupled with lower commodity prices and the China rout,” Ibrahim Aksoy, an investment strategist at HSBC Asset Management in Istanbul, said by e-mail. “The political situation and doubts over whether monetary policy will act to protect lira are making the Turkish currency more vulnerable.”