Turkey's market rout deepens after Erdogan's strong election showing (updated)

Otokar Otomotiv ve Savunma Sanayi

16/05/2023 12:58

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      Turkish assets fall again as Erdogan seen extending rule
    

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      Banking stocks drop over 8%
    

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      Lira nudges closer to record low
    

  
 (Adds stocks in paragraph 13 and quote in paragraph 16)
    By Libby George and Canan Sevgili
       LONDON, May 16 (Reuters) - Turkey's market rout deepened
on Tuesday amid investor expectations that President Tayyip
Erdogan will be able to extend his rule - and his unorthodox
economic policies - into a third decade. 
    Banking stocks and sovereign dollar bonds slid for a second
day and the cost of insuring exposure to Turkish debt rose
further after Erdogan defied expectations in Sunday's
presidential race, securing just under the 50% threshold needed
to win outright and giving him the lead over opposition rival,
Kemal Kilicdaroglu, ahead of the May 28 runoff vote.
    "Markets are now reacting to the fact that we're probably
going to get a return to the previous administration and a
continuity of the policies that have made Turkey almost
un-investable as far as western fund managers are concerned,"
said  Jon Harrison, managing director of emerging market macro
strategy at TS Lombard. 
    Ahead of the elections, opinion polls had showed
Kilicdaroglu in the lead, and investors expected him to scrap
some of Erdogan's economic policies, including costly efforts to
prop up the lira currency. 
     The lira, which analysts say has become increasingly
managed by the Turkish authorities over the last year, was a
touch softer at 19.7175 to the dollar  TRYTOM=D3  and nudging
ever closer to the record low of 19.80 low hit in March. 
    Longer-dated, dollar-denominated government bonds saw the
biggest falls in fixed income markets, although key corporate
and banking sector bonds also edged lower.
    The government's 2045-maturing bond dropped 1.5 cents to
trade at just under 73 cents on the dollar, near its lowest
since late February, Tradeweb data showed, after falls of more
than 7 cents on Monday. 
    Five-year credit default swaps, which indicate the price of
insuring government debt against default, climbed to 652 basis
points, up 18 bps from Monday's close and 160 bps above Friday's
pre-election level.  TRGV5YUSAC=MG  
    Credit ratings agency Fitch said the political and economic
uncertainty would continue at least until after the runoff.
    "In terms of the pressure on Turkiye's 'B'/Negative
sovereign rating, our focus after the election will be whether
the policy mix becomes more credible and consistent," it said,
using the Turkish name for the country. 
    Banking stocks, which had surged in the week ahead of the
election on hopes of a policy change, tumbled another 8%
 .XBANK  to take their losses since the election to nearly 20%. 
    Shares of Yapi Kredi  YKBNK.IS , Is Bank  ISCTR.IS  and
Akbank  AKBNK.IS  crashed more than 9% alongside major
conglomerate Koc Holding  KCHOL.IS , discount chain BIM
 BIMAS.IS  and Coca-Cola Icecek  CCOLA.IS .
    Mining company Koza Madencilik  KOZAA.IS , commercial and
military vehicle producer Otokar  OTKAR.IS  and steel producer
Kardemir  KRDMD.IS  were among the best performers on BIST-100
index, rising between 1.51% and 4.16%.
    The overall Istanbul bourse index  .XU100 , which had
notched a 6.1% fall on Monday, its largest daily percentage drop
since early February, was mostly flat. Still, some warned there
could be further downward pressure. 
    "Continued capital controls and effective FX interventions,
albeit unsustainable, should mean less volatility in the
shortest end of Turkish asset prices," Erik Meyersson chief
emerging markets strategist with SEB Bank wrote in a note. 
    "That said, the unsustainability of the current policy
environment is highly negative in anything longer than the
shortest of time horizons, and we cannot rule out a sharp
adjustment in Turkish asset prices within a year without at
least a significant partial policy reversal by the government."

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Cost of insuring against a Turkish default rising again    https://tmsnrt.rs/41Gdcg8
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 (Additional reporting by Karin Strohecker and Marc Jones in
London and Amruta Khandekar in Bangalore
Editing by Gareth Jones and Christina Fincher)
 ((Libby.George@thomsonreuters.com; +44 07527 061331; Reuters
Messaging: libby.george@thomsonreuters.com))