Turkish Stocks Cap Best Quarter in Three Years, Lira Gains

  • The Borsa Istanbul 100 Index rises 16 percent this year
  • Currency rises 3.5 percent, extends second quarterly advance

Turkish stocks capped their best performance in three years and the lira extended its second straight quarterly gain as cheap valuations and a dovish Federal Reserve boosted demand for the nation’s assets.

The Borsa Istanbul 100 Index rose for a third day and the lira strengthened after reports showed the economy grew more than forecast in the three months ended Dec. 31 and the trade gap narrowed. Equities have rebounded in the first three months after valuations relative to emerging markets dropped to a six-year low following their worst annual performance last year since 2011.

“This quarter’s rally has a lot to do with the fact that lira assets were oversold last year,” according to Burak Cetinceker, a money manager at Istanbul-based Strateji Portfoy. “The market rendered the Fed will not be able to raise interest rates earlier than June and with that, part of the money that has left emerging markets last year and early this year returned.”

Turkish assets rallied with emerging markets this week after Fed Chair Janet Yellen said the any rate increase will be gradual, joining accommodative policies in Europe and Asia that boosted appetite for risk. Investors have bought a net $2.7 billion stocks and bonds this year through March 25, the biggest year-to-date inflow since 2011, after escalating violence at home and abroad and political turmoil spurred a record selloff.

Rebound

The Borsa Istanbul 100 Index gained 0.4 percent, capping a 16 percent advance this quarter. Following a 16 percent slide in 2015, the difference in the estimated price-to-earnings ratio for Turkish stocks relative to the MSCI Emerging Markets Index fell to 2.7 at the start of January, the cheapest since March 2010, according to weekly data compiled by Bloomberg.

The lira appreciated 0.6 percent to 2.8197 against dollar as of 6:37 p.m. in Istanbul, bringing this quarter’s advance to 3.5 percent. Two-year government notes were unchanged, with the yield on two-year government notes down 87 basis points in the three-month period to 9.99 percent, the biggest decline after Indonesia and Brazil among developing nations.

Turkey’s trade gap shrank in February as exports rose for the first time since October, according to a central bank report today. The shortfall narrowed to $3.17 billion from $4.7 billion a year earlier amid a broad-based increase in shipments. The data bodes well for Turkey’s current-account deficit, the biggest among the Group of 20 nations relative to the size of the economy last year, which holds the country hostage to foreign capital and shifts in global investor sentiment.

Economic Growth

Another report showed the economy expanded 5.7 percent in the fourth quarter, the most among the G-20 after China and India, driven by household spending as families shrugged off political uncertainty and rising violence.

“It is clear that after months of political uncertainty there has been a relief, which is reflected on strong consumption,” Philippe Dauba-Pantanacce, an emerging-market economist at Standard Chartered Plc in London, said by e-mail. “The trade gap continues to narrow down. Maybe the reasons behind are not fantastic as they are rather volatile factors. Nevertheless, it doesn’t change the fact that this is diminishing Turkey’s external vulnerabilities.”

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