Turk markets keep sliding

ANKARA (Combined reports) – The Turkish stock market continued its slide yesterday, dropping 3.2 percent ahead of a decision by the nation’s highest court to cancel last week’s disputed presidential vote. The benchmark index, the IMKB-100, fell 3.2 percent to close at 43,529.49 points, before the Constitutional Court’s decision opened the way for possible early general elections. The index had sunk 6.3 percent on Monday as the government came under pressure to declare early general elections. «Turkey is a poorer country compared to Friday,» State Minister Ali Babacan, who is in charge of the economy, told private NTV television. Turkey’s currency, the lira, slid against foreign currencies and stood at 1.37 against the US dollar, compared to Friday’s close of 1.33. The court’s decision was crucial for the future of Prime Minister Recep Tayyip Erdogan’s Islamic-rooted government, which is at odds with the country’s secular establishment over fears it might be trying raise the influence of Islam in public life. The government said it was considering holding general elections «as soon as possible» – something analysts said could ease the buildup of political tensions and market worries. «Early general elections seem to be only way out of this business,» said Saruhan Dogan, a market analyst with Finansbank. »The ruling party has become a party which is straining social balances.» Erdogan’s government faced a stern warning from the powerful military, which accused the government of tolerating or encouraging radical Islam. At least 700,000 protesters marched in Istanbul on Sunday to demand the resignation of the government. The country’s influential association of Turkish industrialists and businessmen, TUSIAD, urged the government to declare immediate early general elections. The decision represents a setback for the government, which had hoped to strengthen its authority with the election of Foreign Minister Abdullah Gul to the presidency. Gul failed to win a first-round victory Friday in a parliamentary presidential vote marked by tension between secularists and the pro-Islamic government. Some secularists object to his candidacy because his wife covers her head with a headscarf and is therefore seen as potentially allowing more Islamic influence on the state. Erdogan appealed for stability on Monday and drew attention to his strong economic record in a national address. ‘Ready for early poll’ Turkey’s economy is ready for early elections, Economy Minister Ali Babacan said yesterday in an interview with NTV television. The timing is not a «main determinant» for the economy, he said. Turkey is scheduled to hold general elections in November, but opposition parties have called for early polls. Babacan said that the country’s public debt stock can withstand foreign exchange and interest rates shocks. But he added that the dispute over the presidency had raised Turkey’s market risk premium, and investors are watching the country much more closely. «Turkish government debt stock is resilient to foreign exchange and interest rate shocks,» Babacan said in an interview with the NTV television channel. «(But) the non-political risk premium has been added to Turkey’s political risk premium.» Citi cuts Turk stocks Separately, Citigroup yesterday cut its recommendation on Turkish stocks to underweight from overweight, citing the likelihood of prolonged political turmoil and less compelling valuations. The bank said in note to clients that Turkey, one of last year’s top performing emerging markets, looks increasingly vulnerable as political tensions rise. «The lira looks vulnerable and bond yields are likely to remain high, constraining upside for the equity market even if political tensions ease,» analysts Andrew Howell and Geoffrey Dennis said, noting interest rates are likely to stay high for some time. They also said Turkish valuations no longer look as compelling, with the 11.3 price/earnings ratio for 2007 just 10 percent under the average in Central and Eastern Europe, the Middle East and Africa. This discount was 35 percent in June 2006. «Still a good long-term story but wait out the volatility… We see limited valuation upside from here and would expect markets to remain under pressure in the near term, regardless of how the current political standoff is resolved,» they added. (AP, Reuters)