Turkish Lira Approaches Record Low as Stocks Slump on Probe

The Turkish lira fell, approaching records against the dollar and the euro, and stocks declined as investors speculated that political turmoil will continue to roil markets into 2014.

The currency weakened 1.2 percent to 2.1495 per dollar at 5:45 p.m. in Istanbul, after closing at a record 2.1549 Dec. 27. The Borsa Istanbul 100 Index dropped 0.3 percent to 67,801.75, extending its decline this year to 13 percent, fifth-worst among 94 major indexes tracked by Bloomberg. On a dollar basis, the index is 28 percent lower, the second-biggest decline after Peru’s gauge.

The lira has fallen 5.7 percent and the nation’s stocks 9.4 percent since police detained the head of a state-run bank and the sons of three cabinet ministers Dec. 17 on graft allegations. Prime Minister Recep Tayyip Erdogan has fought back, removing hundreds of police chiefs and promising to root out a “gang” within the judiciary he says is responsible for the probe.

“The political crisis still makes the lira very sensitive to selling,” Jerome Broex, a currency and fixed-income trader at Turkish Bank AS in Istanbul, said by e-mail today. “Not many investors want to take positions now at the end of the year and with this uncertainty.”

The lira depreciated to a record 3.0151 per euro Dec. 27. The Istanbul 100 index surged 6.4 percent yesterday, the biggest gain in more than three months.

Koza Altin Isletmeleri AS, which says it’s the nation’s third-largest private taxpayer, halted operations at one of its mines today after a local government body said it didn’t have the necessary permits, a claim that it denies.

‘Political Shock’

Koza Altin is among companies represented by a business lobby that utilizes the network of Fethullah Gulen, a U.S.-based cleric and former ally of Erdogen. The shares plunged as much as 9.2 percent today, before closing 7.5 percent lower, the second-biggest decline on the benchmark gauge after a company in the same group, Koza Anadolu.

The split between Erdogan’s party and the Gulen movement, which had cooperated to give Turkey 11 years of single-party government, marks a “political shock of historic proportions,” Murat Ucer, a partner at New York-based economic advisory firm GlobalSourcePartners Inc., said in an e-mail today. “We can’t be sure for how long financial markets may be able to handle this war of attrition without turning it into a full-blown panic.”

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