Turkish Stocks Plunge Most Worldwide as Banks Erase Year’s Gains

Turkish stocks were the worst performers among world equity markets today as banks plunged, turning a gain on the year to a loss.

The benchmark index dropped 3.9 percent to the lowest level this year, extending a decline which started earlier this week when Moody’s Investors Service quashed expectations of a second investment-grade rating for the country. The bank index plunged 4.9 percent, turning a gain of much as 14 percent in the year to Jan. 23 to a loss of 0.1 percent today.

Investor disappointment after Moody’s left Turkey’s credit rating unchanged at one level below investment grade has been a pretext for the selloff, according to Mehmet Gerz, chief executive officer at Istanbul-based Ata Asset Management. Expectations of an upgrade had led to a premium for Turkish equities that was erased when that didn’t materialize, he said.

“Turkish stocks were trading at a 10 percent premium over peer emerging market stocks,” Gerz said in a phone interview today. ’’Now, this premium has been removed.’’

The price-to-earnings ratio on the ISE National 100 index in Istanbul was 12 as of the close in Istanbul today, compared with 12.4 on the MSCI Emerging Markets Index, according to data compiled by Bloomberg.

Leading Decliners

The Istanbul Stock Exchange National 100 Index fell to 78,982.94 points, 8.6 percent below its all-time high of 86,437.89 on Jan. 24. Banks led the fall, with Turkiye Garanti Bankasi AS dropping 5.2 percent, Akbank TAS 5.7 percent and Turkiye Halk Bankasi AS 4.3 percent.

Turkcell Iletisim Hizmetleri AS, the country’s largest mobile phone company, dropped 6.8 percent to the lowest since Dec. 19 after a U.K. court ruling failed to conclude a long-running shareholder dispute.

The index, which surged 53 percent last year, pared its gains this year to just 1 percent. It was the third-best performing index worldwide last year.

Technical Indicators

Technical indicators preceding the sell-off in Turkish equities showed the market was both overbought and overvalued, according to Bali Ekin, head of equity trading at Amsterdam-based Credit Europe Bank NV.

An “extreme” reading of 83.2 on Jan. 23 on the relative strength index on the ISE30, a smaller index tracking the country’s 30 largest companies, predicated the fall, Ekin said by e-mail today. “Once Moody’s was over, the catalyst was gone and obviously some board decisions were made to lock in profits,” he said.

A 14-day relative strength index reading above 70 indicates to some technical analysts that a security or index is poised to decline.

Before it's here, it's on the Bloomberg Terminal.