Turkish Stocks Fall as Syria Offensive Ratchets Up Country Risk

  • Borsa Istanbul 100 Index drops 1.6%; 10-year debt yields rose
  • Moody’s mulling credit downgrade as investors await Yellen

Turkish stocks slumped the most in three weeks as the country launched its biggest military operation in Syria to keep the Islamic State group away from its border.

The Borsa Istanbul 100 Index fell 1.6 percent to close at 76,116.31, after sliding as much as 2.9 percent. Bonds also retreated, with yields on 10-year government notes rising two basis points to 9.81 percent, and the cost to protect the country’s debt against default increased.

Equities posted the second-biggest decline since S&P Global Ratings cut the country’s credit score to two levels below investment grade a month ago. Military operations in Syria’s Aleppo province add geopolitical risk to a list of investor concerns that include last month’s attempted coup, the subsequent political crackdown and another potential downgrade from Moody’s Investors Service.

“The risk-reward in Turkey isn’t particularly good as growth is likely to disappoint and we’re advising investors to reduce positions,” Michael Harris, the head of research at Renaissance Capital in London, said by e-mail.

Turkey’s offensive comes amid increasing risk aversion among global investors reflecting speculation Federal Reserve Chair Janet Yellen may signal that the U.S. central bank is determined to raise interest rates this year.

Akbank TAS and Turkiye Garanti Bankasi AS were the biggest contributors to the equity benchmark’s decline with losses of 3.4 percent and 2.8 percent, respectively.

“Investors seem concerned that Turkey’s first major comprehensive offensive on Syrian soil could escalate the geopolitical risks in the region,” Akin Tuzun, a Moscow-based analyst at VTB Capital, said by e-mail. 

Koza Shares

The number of Borsa Istanbul 100 Index members that fell Wednesday was 83, the most since Aug. 3. Three publicly traded companies of Koza-Ipek Holding were the biggest gainers by percentage points.

The gold miner Koza Altin and energy company Ipek Dogal Enerji both climbed 20 percent. The surge came after Haberturk newspaper reported, without citing a source, that the government is working on a decree that will allow Turkey to seize control of companies that have suspected links to U.S.-based cleric Fethullah Gulen. The newspaper also said Koza-Ipek Holding may be included in the plan.

Biden’s Visit

The lira slipped 0.1 percent to 2.9561 against the dollar as of 6:24 p.m. in Istanbul. The currency pared losses of as much as 0.5 percent after U.S. Vice President Joe Biden voiced support for Turkey and its leadership on a visit to Ankara.

The U.S. will do all it can to bring plotters to justice, Biden said Wednesday in a bid to repair an alliance frayed by the attempted coup and tensions over efforts to combat the Islamic State. “I’m saddened by the unconscionable attack in an attempt to take down Turkish democracy,” he said.

“The tone and content of the comments and remarks are beyond expectations,” Ozgur Altug, an economist at BGC Partners in Istanbul, wrote in an e-mailed note. “The meeting with President Erdogan will be monitored more carefully, but the first meeting outcome was positive.”

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