By Sujata Rao
LONDON, Dec 27 (Reuters) - Turkish stocks crashed 4 percent
on Friday, heading for their biggest weekly loss since 2008, and
the lira plumbed new record lows as a deepening political crisis
threatened to derail economic growth and company profits.
Investors stampeded out of Turkish assets as the high-level
graft case engulfed swathes of Turkey's government, civil
service and judiciary, revealing fissures within the ruling AK
Party before next year's elections.
The biggest casualty so far has been the lira, which shed 2
percent to a new record low, bringing year-to-date losses to
more than 17 percent against the dollar, and forcing the
central bank to lift its Dec. 30 dollar auction to $600 million.
The bank has already signalled it is ready to spend up to $6
billion next month to defend the lira.
But this response has alarmed investors who reckon usable
reserves are below $50 billion, compared with more than $100
billion in dollar debt maturing in the coming year. Gross
reserves fell more than $1 billion in the week to Dec. 20 to
$114.2 billion, central bank data showed on Thursday.
Political risk consultancy Eurasia Group said Prime Minister
Tayyip Erdogan had signalled his intention to prioritise the
battle with the rival Gulen movement. Erdogan has responded to
resignation calls by filling his cabinet with loyalists.
'Both policy-making and the rule of law will suffer as a
result... Political volatility in Turkey is set to continue into
the New Year with ongoing negative implications for the
economy,' Eurasia Group told clients in a note.
Fears of a lira collapse will cause foreign investors to
reassess their Turkish holdings. They sold $1.4 billion worth of
Turkish local bonds in the week to Dec 20, their holdings now at
$54 billion, compared to $72 billion back in May.
Two-year benchmark bond yields have risen 100 basis points this month, while Istanbul stocks fell to 18-month
lows after shedding 11 percent this week.
Year-to-date, Turkish stocks are down more than 20 percent,
making Istanbul the worst performing large emerging market
bourse. Shares in Halkbank, whose head has been
detained on graft charges, fell more than 5 percent.
Car dealer Dogus, the Turkish distributor of Audi and
Volkswagen cars, voiced fears for the economy on Friday, as its
CEO told Reuters the company might revise 2014 sales targets
because of borrowing curbs and political tensions.
Charlemagne Capital fund manager Julian Mayo said he is
overweight Turkish shares but has focused his portfolio on
exporters such as Tofas and Arcelik, which benefit from a weak
currency. Lira weakness is a worry for overseas investors
because in dollar terms Turkish shares are down 30 percent this
year, the worst performing major index after Peru.
'Normally one finds that in such situations with political
upheaval there are good buying opportunities and people tend to
overestimate the damage this causes economically,' Mayo said.
But he added: 'It is quite concerning because this seems to
be a struggle within the government. I would say it's not a time
to be making brave (investment) decisions.'
In broader emerging markets, equities rose 0.3 percent, led by gains in China, as investors shrugged off a
rise in U.S. 10-year yields to almost two percent
and focused on the improving global growth picture.
But cash continued to flee emerging markets in the week to
December 25, banks said, citing EPFR Global which releases data
to clients late on Thursday. Emerging equity funds shed $1.3
billion while bond funds lost $1.2 billion, EPFR said.
'The trend continues to show a low level of confidence among
investors in emerging markets and we see little evidence that
the Fed's recent actions have helped EM,' Barclays analysts said
in a note.
(For GRAPHIC on MSCI emerging index performance 2013, see http://link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2013, see http://link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2013, see http://link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see)
(Editing by Gareth Jones)
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Keywords: MARKETS EMERGING/
(Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg on year Morgan Stanley Emrg Mkt Indx 996.16 +2.98 +0.30 -5.60 Czech Rep 986.77 +3.81 +0.39 -5.00 Poland 2407.85 -6.34 -0.26 -6.78 Hungary 18334.09 -125.24 -0.68 +0.89 Romania 6461.08 +44.86 +0.70 +25.47 Russia 1450.23 +1.94 +0.13 -7.99 South Africa 40766.25 +602.67 +1.50 +17.16 Turkey 62054.74 -2500.46 -3.87 -20.65 China 2101.25 +28.15 +1.36 -7.40 India 21193.58 +118.99 +0.56 +9.10 Currencies Latest Prev Local Local close currency currency )
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