- Bonds also fall this week, pushing 10-year yields above 10%
- Credit Suisse says MSCI Turkey has potential for 12% rally
Turkish stocks fell, capping the longest stretch of weekly losses in five months, and the lira weakened as a domestic political crisis compounded a faltering rally for emerging-market assets.
The Borsa Istanbul 100 Index closed 0.6 percent lower on Friday, extending a drop this week to 0.7 percent. The lira depreciated 0.3 percent to 2.9695 per dollar by 7:12 p.m. in Istanbul in its sixth day of declines, and government bonds slumped.
A political crisis in Turkey has made domestic markets more vulnerable to a selloff gripping developing nations as investors cut back on risk. The rift between the President Recep Tayyip Erdogan and Prime Minister Ahmet Davutoglu that prompted the premier to step down has left future monetary and fiscal policy in doubt and led overseas investors to sell $481 million in stocks and bonds in the week ending May 6, the most since December, according to central bank data.
“For me Turkey remains an underweight,” said Maarten Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague. “The combination of a more challenging global environment and domestic political risk is not a nice one.”
Yields on 10-year government bonds rose 12 basis points to 10.06 percent on Friday, bringing the increase in May to 82 basis points.
Not all analysts and investors are bearish. Credit Suisse Group AG on Friday recommended buying Turkish shares with the view that the MSCI Turkey Index has the potential to rally 12 percent in dollar terms, based on the bank’s models, while the economy appears health. Credit Suisse said it is continuing to hold 20 percent more Turkish stocks in its portfolio than benchmarks suggest. Top company picks include Koc Holding AS, Turkiye Is Bankasi and Coca-Cola Icecek AS, it said.
Data compiled by Bloomberg show valuations on the stock market at 8.3 times expected earnings on Friday, the cheapest since Feb. 26 after the index fell 8.8 percent in May, while the 14-day relative strength index fell to 31 on Friday, close to a level which some technical analysts see as a sign that a security may be oversold. A broader gauge of emerging-market stocks has declined 5.2 percent this month.
Any boost will be from global forces rather than domestic drivers, said Murat Borekci, the London-based co-head of equity research at Yapi Kredi Yatirim. “There will definitely be some good days mostly related to global developments but internal dynamics remain unfavorable at the moment.”