Turkish shares leap up and lira rallies on news of EU talks deal

ISTANBUL – Turkish shares notched up a fresh closing high yesterday while bonds and the lira also rallied after Turkey began European Union entry talks, giving a powerful boost to investor confidence in the country. The lira rally triggered central bank intervention to buy dollars, reining in the Turkish currency’s morning gains, and ratings agency Fitch hailed the EU decision as supportive of Ankara’s sovereign rating prospects. «The start of accession negotiations together with the ongoing IMF program provides a strong framework for the continuation of economic reforms,» Fitch lead analyst for Turkey Nick Eisinger said in a statement. Fitch acknowledged that accession could take many years but said the process itself would underpin structural reforms, bolster liberalization and encourage foreign investment flows. But rivals Moody’s Investor Service said the start of EU accession talks would not immediately impact Turkey’s sovereign ratings outlook. Moody’s has a long-term foreign currency rating of «B1» on Turkey, a notch below that assigned by Fitch. «We have a positive outlook so we are halfway there,» Moody’s Turkey analyst Kristin Lindow told Reuters. «The concern is that public debt and current account numbers, the external debt ratios, are very weak even within the current rating.» Turkey’s main share index ended up 3.86 percent at 35,624.79 points after gaining 3 percent on Monday in anticipation of the EU deal. Yesterday’s trade volume, at 2.833 billion new lira, was the highest so far in 2005. Yields on the benchmark May 9, 2007 bond tumbled to 14.60 percent from a Monday close of 15.26 percent, while the lira stood at 1.3505 on the interbank market after intervention began at the 1.3355 level. Explaining its intervention, the central bank said it bought dollars «to prevent existing and expected volatility under the influence of the start of the European Union accession process.» The yield on Turkey’s benchmark 30-year sovereign dollar bond hit a record low of 7.421 percent. It was bid at 149.688 to yield 7.421 percent. This compares with a yield of about 8.7 percent at the start of May 2005. New period «With the start of Turkey’s membership talks we have entered a new period in Turkey’s 42-year adventure with the EU. We see a positive atmosphere in the financial markets with this process,» said HSBC economist Fatih Keresteci. «Even if there is profit-taking we expect the positive trend and foreign inflows into the markets to continue.» Turkey and the EU agreed to start the talks on Monday, bringing a sense of relief to Turkey after two days of wrangling over Austrian and Turkish objections to the negotiating mandate. «Turkish markets, the electorate and indeed the government will certainly breathe a deep sigh of relief after years of hard work,» said Bank Austria Creditanstalt analyst Simon Quijano-Evans. «The path ahead will certainly contain many hurdles, but the associated reforms will open the gates to economic consolidation, foreign investment (and) an improvement in social conditions,» he said. The start of talks generated fresh confidence before the sale tender for the Privatization Administration’s (OIB) 46.12 percent stake in Erdemir, Turkey’s largest producer of flat steel, after the share market had closed. Turkey’s OYAK group – the armed forces’ pension fund – made the highest bid of $2.77 billion after other interested parties, including global giants Mittal Steel, Arcelor and Russian firms Severstal and NLMK were eliminated.