Bribery Claims Add to Turkish Stocks’ Worst Month Since 2014

  • Borsa Istanbul 100 Index extends monthly loss to 8.6 percent
  • Investors also assessing Simsek’s powers in government

Allegations of bribery involving the former head of the nation’s largest publicly traded state bank helped put Turkish stocks on course for their biggest monthly slump in more than two years.

The Borsa Istanbul 100 Index fell 0.8 percent after U.S. prosecutors alleged Wednesday in a court filing that Turkiye Halk Bankasi AS’s ex-chief executive officer Suleyman Aslan and former government officials were involved in a high profile bribery scheme. The allegations coincide with an announcement that Deputy Prime Minister Mehmet Simsek, who is perceived by investors as market friendly, is no longer responsible for capital markets and banking regulators after a government reshuffle this week.

The bribery accusations and Simsek’s diminished role are the latest in a series of blows to Turkish stocks. The nation’s rising political tension, which led to a cabinet reshuffle this week and the prime minister’s resignation earlier this month, prompting foreigners to sell equities of a net worth of $645 million in the three weeks through May 20. The Borsa 100 lost 8.6 percent this month.

“There is nothing for foreign investors to like about Turkish stocks,” Nathan Griffiths, a senior emerging-market equities manager who helps oversee $1.1 billion at NN Investment in The Hague, said by e-mail. “There is not a single country with a worse political backdrop.”

The yield on the nation’s 10-year bonds fell nine basis points to 9.98 percent, trimming the jump this month to 74 basis points as of 4:16 p.m in Istanbul. The lira gained 0.3 percent to 2.9272 per dollar, erasing losses of as much as 0.3 percent.

Gold Trader

U.S. prosecutors said that they have evidence Turkish-Iranian gold trader Reza Zarrab, who is accused of helping the Iranian government evade American sanctions, paid at least $1.4 million to Halkbank’s former CEO Aslan. The bank’s shares fell 2.7 percent and was the third-biggest contributor to the index’s decline.

“While today’s news in particular does not pose any direct risk for Halkbank given it dismissed the former CEO, the reports are raising the perception risk against the bank as U.S. prosecutors’ allegations affect the lender’s reputation,” Gulsen Ayaz, a director of institutional equity sales at Deniz Yatirim Menkul Kiymetler in Istanbul, said by e-mail.

Last Survivor

Investors are also assessing to what extent Simsek, seen as the last member of a team of officials credited with orchestrating Turkey’s rapid growth years, will be able to keep President Recep Tayyip Erdogan from interfering in monetary policy.

Erdogan, who has rallied support for constitutional change to grant him executive powers, has repeatedly called for lower borrowing costs to boost growth, even though inflation is above the central bank’s target.

The change to Simsek’s role “shouldn’t be a surprise to anybody,” Luis Costa, Citigroup Inc.’s London-based chief strategist for eastern Europe, the Middle East and Africa, said by e-mail. “It is very clear to me the axis of power in the new economic team is moving away from Simsek, and it is now being diluted by Erdogan’s economic advisers.”

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