Istanbul’s stock market extends gains, rising 10 pct; rate cut seen

ISTANBUL – Turkish markets surged yesterday on hopes a new government will tackle key economic reforms and push ahead the country’s EU bid after winning a landslide victory in Sunday’s general election. Stocks soared 10.17 percent to close the day at 11,947.28 points, and the lira climbed to 1,641,000 against the dollar from a previous 1,672,000. Yields on benchmark July 2, 2003, debt fell to 57.53 percent from Monday’s close of 64.48 percent. The gains extended Monday’s rally in which investors welcomed the Justice and Development Party’s (AK) pledges it would form a strong government committed to the spirit of a $16-billion International Monetary Fund program. The treasury sold a net 1,113.6 trillion lira ($681 million) in those July 2, 2003 papers at a maximum yield of 56.5 percent in a first test of lenders’ confidence in the new government. The treasury also sold a net 2,180.2 trillion lira of 133-day debt in a separate sale yesterday at a maximum yield of 54 percent. Both yields were lower than market expectations and underlined the post-election optimism. Some traders said the fact that the treasury had only borrowed modestly at such low rates was a hint it shares market expectations that the central bank will cut its benchmark overnight rate soon. «The treasury chose not to borrow much on the long term (yesterday) despite the fast fall in rates. It may have done so on expectations of a rate cut,» said one banker, who asked not to be named. Turkey needs to bring down yields sharply in order to deal with a domestic debt load swollen by last year’s crisis and made more expensive to service by months of political turmoil. Stockbrokers said the rise, which follows a 6 percent surge on Monday, could slow or fall back today. «With this optimistic atmosphere and a cash influx, you can’t expect much of a fall,» said Emre Sezan of Alfa Securities. Traders warn markets could be choppy until the government forms and outlines its economic program. AK has also promised it will quickly nominate a prime minister to head the government it wants to form before a European Union summit in December, at which candidate Turkey hopes to secure a date for the start of entry talks. Although AK leader Recep Tayyip Erdogan’s popularity helped carry the party to victory, he is barred from public office for «inciting religious hatred.» Markets would like to see a moderate leader who will mollify Muslim Turkey’s powerful armed forces, who consider themselves the guardians of the secular order. A strong candidate would be deputy head Abdullah Gul, who has financial experience and is well known in the Ankara diplomatic community. «Gul successfully worked the foreign investor community in the runup to the polls selling the AK’s market-friendly agenda,» said Timothy Ash, economist at Bear Stearns in London. Erdogan has pledged great strides toward securing Turkey EU accession talks, including a planned trip to Greece and other European countries. He and the leader of the only opposition party yesterday pledged to work together on the EU bid.

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