Turkish Stocks End Worst Rout Since Graft Probe as Lira Advances

  • China Rate cut eases pressure on Turkish central bank
  • Emerging-market equities rebound after rout on Monday

Turkish stocks ended their worst rout in 20 months and the lira strengthened after China’s steps to stimulate its economy bolstered appetite for riskier assets.

The benchmark Borsa Istanbul 100 Index rose 3.3 percent to 73,714.13 at 3:50 p.m. after a 7.7 percent drop in the prior six days drove it into a bear market. That was the biggest slide since a corruption probe against the government came to light in December 2013. The lira gained 0.8 percent to 2.9177 per dollar on Tuesday.

Investors have battered the nation’s assets as more than two months of political deadlock and security concerns compounded the risks of capital outflows from emerging markets triggered by concern the slowdown in China is worsening and as the U.S. Federal Reserve prepares to raise rates. China’s central bank said today it will reduce its one-year lending rate by 25 basis points and cut banks’ required reserve ratio, suggesting policy makers are determined to boost growth.

“The improving sentiment is supporting the lira, as well as all lira-based assets,” Evren Kirikoglu, a strategist at Akbank TAS in Istanbul, said by e-mail. “If yesterday’s sell off was indeed overdone and the global market volatility continues to subside, this means that the central bank will be less likely to have to step in via extraordinary measures.”

The lira remains about 2.6 percent away from a record low reached on Aug. 20 as the failure of coalition talks forced President Recep Tayyip Erdogan to call new elections. Turks will head to the ballot box again after an inconclusive vote in June saw the ruling AK Party that Erdogan co-founded lose its parliamentary majority for the first time since 2002.

The instability is having repercussions on the economy with Moody’s Investors Service predicting growth will slow to 2.5 percent in 2015 from 2.9 percent last year.

Real-sector confidence in Turkey fell to 103.7 in August from 105.4 in July, according to data published by the central bank today. Capacity utilization, which captures overall slack in the economy, subsided to 74.8 percent from 75.9 percent last month.

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