Turkish markets ‘flat’

ANKARA – Turkish markets will stay largely flat in the weeks leading up to a key EU summit in December and are already pricing in the possibility the meeting may agree a partial suspension of Ankara’s entry talks, investors say. The European Commission said in its annual progress report on Wednesday that Ankara must open its ports to shipping from new EU member Cyprus by mid-December or face unspecified consequences. Turkey has no diplomatic relations with the internationally recognized Greek Cypriot government, backing instead breakaway Turkish Cypriots in the north of the Mediterranean island. The uncertainty over Ankara’s EU bid coincides with large inflows of foreign capital into Turkey’s high-yielding assets. «We are seeing very serious foreign capital inflow which is lending support to the lira and bonds despite local concerns,» said a trader, adding that this allowed Turkey to better absorb bad political news. Turkish markets have performed strongly since October inflation came in lower than expected last week. Few analysts expect the EU next month to demand a full suspension of Turkey’s accession talks over the Cyprus issue as that would provoke a big crisis. «The market expects a mid-way solution… Assuming we avoid any nasty surprises, it seems the market will remain flat,» Oyak Investment chief economist Mehmet Besimoglu said. Baris Sozen, fixed-income trader at Akbank, said: «The markets are now pricing in a possible decision to delay the opening of some chapters in the negotiations.» Turkey must bring its laws into line with those of the EU in 35 «chapters» or policy areas. «I don’t expect the benchmark bond yield to fall below 20.5 percent or the lira to fall much below 1.45 against the dollar in the coming month,» said Sozen. If, as expected, Turkey does not budge on Cyprus, the Commission is likely to recommend that negotiations on chapters directly related to the free movement of goods and services be stalled, JP Morgan Securities said in a research note. But some analysts warned against complacency. «Suppose… the December Brussels summit is hijacked by the real Turkeyphobes who just need an excuse to derail the whole process,» said Timothy Ash of Bear, Stearns & Co. Public opinion in France, Austria and Germany is largely against ever accepting the populous, Muslim country into the EU. «The EU negotiations will remain a key market topic, and even though the worries until now have not moved Turkey significantly, we would certainly not rule out the possibility that this could change in the near future,» said Danske Bank’s senior analyst Lars Christensen. Markets have a new date to focus on and this could spur renewed jitters among investors in Turkey, said Christensen. The Turkish government, which faces elections next year, is not expected to offer concessions on Cyprus as this could expose the ruling AK Party to claims it was selling out to Europe amid an increasingly nationalistic public mood. (Reuters)

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