Turk shares, lira rise

ISTANBUL (Reuters) – Turkish shares and the lira rose yesterday as investors hoped early general elections on July 22 would help resolve a row between the Islamist-rooted government and the secular elite. The lira closed at 1.3530 against the dollar on the interbank market, firming 0.4 percent from 1.3588 a day earlier. The main share index was up 1.74 percent to 45,026 points just before the close. The yield on the benchmark February 4, 2009 bond rose to 19.03 percent from 18.96 percent. Investors were also watching developments in the initial public offering of state lender Halkbank, for which bids are being sought. After sharp losses in the first two days of the week, the market has recovered partially as investors see early elections as the best way to resolve the standoff between the ruling party, rooted in political Islam, and the secular establishment, over presidential elections. The presidential candidate of the Justice and Development Party (AKP), Foreign Minister Abdullah Gul, is a former Islamist whose wife wears an Islamic headscarf. The challenge to his election came from the main opposition Republican People’s Party (CHP), which along with the rest of the secularist establishment fear that Gul as president and Erdogan as prime minister would push Turkey toward an Islamist agenda. The opposition had been demanding early elections, but Erdogan’s AKP is widely expected to win after five years of strong economic growth since it came to power. Inflation Turkey’s consumer price index rose a higher-than-expected 1.21 percent in April, taking the yearly rate to 10.72 percent, the Turkish Statistics Institute said. «(It) seems that the disinflation process will be slower than the market had been expecting,» economist at Bear Stearns Tim Ash said. «Market consensus for 175 basis points in rate cuts this year appeared way too optimistic even prior to the past week’s political developments,» he said, In April last year Turkey’s CPI rose 1.34 percent monthly, which prompted a sell-off of Turkish assets, leading in turn to a combined 425 basis point rise in benchmark interest rates. Those hikes have bitten into domestic demand and boosted the lira currency by luring investors in search of yield, both of which should help tame price rises. But inflation is still running at more than twice the central bank’s year-end target of 4 percent. Separately, emerging market fund manager Mark Mobius said yesterday he remained overweight in Turkish stocks, despite recent political turbulence. «We are very overweight Turkey, we are quite sanguine about everything there,» Mobius, president of Templeton Emerging Markets, with $34 billion under management, told Reuters. «Despite the political upheavals, there is a lot of value there, we do not want to retreat.» Turkish stocks fell around 4 percent earlier this week on a political crisis that has pitted the Islamist-rooted government against the secular establishment. «We were buying Turkey last year when the market went down by 20 percent – this correction is not really significant,» Mobius said.