Turkish Stocks Climb With Lira to Four-Month High on Fed Outlook

  • 10-year government bond yield falls to lowest since November
  • Fed scales back forecast for rate increases this year

Turkish assets rallied, sending stocks and the lira to the strongest levels in four months, after the Federal Reserve trimmed expectations for interest-rate increases this year and analysts speculated valuations remain attractive.

The Borsa Istanbul 100 Index climbed the most in three weeks and the currency strengthened to levels not seen since November as U.S. policy makers indicated two interest-rate increases this year, instead of four forecast in December. That helped send a global gauge of developing-nation stocks up the most since 2011.

“Turkish assets are enjoying a Fed-induced rally across emerging markets,” said Gulsen Ayaz, a director of institutional equity sales at Deniz Yatirim Menkul Kiymetler in Istanbul. “The nation’s stocks were trading at a high discount compared to other emerging-market assets. That’s why, despite the latest rally, the stocks continue to benefit from growing bets for further capital inflows to emerging markets.”

Turkey’s benchmark stock index climbed 2.5 percent, heading for a fifth week of gains. Even after the rally, shares trade at 8.9 times estimated earnings over the next 12 months. That’s less than the 9.6 average over the past five years and a 25 percent discount to the MSCI Emerging Markets Index.

The lira jumped as much as 0.9 percent and the yield on 10-year government bonds fell 25 basis points to 10.04 percent, the lowest level in almost four months.

The lira briefly pared gains earlier today after President Recep Tayyip Erdogan’s top aide said the central bank may cut interest rates next week.

While pressure from Erdogan to lower rates has drawn criticism from investors concerned over central bank independence, Evren Kirikoglu, a strategist at Akbank TAS, Turkey’s second-largest listed lender by market capitalization, said local traders were more influenced by the decisions of central banks in the U.S. and Europe.

“The positive mood in Turkish assets is likely to continue, provided that the political stability remains and inflation doesn’t top 9 percent,” Kirikoglu said.

The Borsa 100’s directional movement index, a measure of the stock rally’s momentum, climbed to the highest level since November. The gauge is about 1 percent away from entering a bull market.

Consumer prices rose 8.8 percent in February, less than the 9.4 percent forecast in a Bloomberg survey of economists.

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