Traders work at their terminals beneath electronic ticker boards inside the Borsa Istanbul. The market closed up 2.01% at 73,946 points yesterday.
The Turkish lira hit its strongest level this year yesterday as investors piled into bonds and equities amid improved sentiment in emerging markets and continued relief over the outcome of bitterly contested municipal elections.
Stocks also struck a 2014 peak, while analysts said the yield on short-term bonds fell below that of Turkey’s 10-year paper for the first time since an emergency rate hike in January, suggesting the market expects looser monetary policy.
Expectations of stimulus from China and comments from the US Federal Reserve that its first rate hike may come later than expected have supported emerging markets in recent days, with currencies and stocks at multi-month highs.
“The unwinding of the ‘buy developed/sell emerging’ trade that started on March 25 is continuing for the third week in a row. Lira-denominated assets are benefiting from foreign inflows as are all emerging markets,” said TEB Invest-BNP Paribas strategist Isik Okte.
“After this major run-up, it won’t be a big surprise if investors take some profits off the table,” he said, noting Turkey was outperforming peers in central Europe, the Middle East and Africa. Turkey is particularly sensitive to global liquidity conditions because it has been relying on cheap foreign capital, made available by the US bond-buying programme, to finance its mammoth current account deficit.
The lira has been volatile for months as increased political uncertainty in the run-up to elections exacerbated an emerging market sell-off spurred on by liquidity concerns.
But a robust showing by Prime Minister Tayyip Erdogan’s ruling AK Party in municipal elections on March 30, despite a corruption scandal and political turbulence in the campaign period, buoyed markets in recent weeks.
“Investors have increased their exposure to emerging markets and the lira benefited more than others as political tensions eased after elections,” said HSBC strategist Fatih Keresteci.
The lira hit 2.0882, its strongest level of the year, firming from 2.1170 late on Monday. It shrugged off Monday’s comments from Turkey’s central bank governor hinting at interest rate cuts, gaining instead from large inflows into bonds and equities.
The yield on the benchmark 10-year bond fell to 10.13% from 10.28% at Monday’s close. The two-year benchmark yield fell to single digits for the first time in almost three months.
The Istanbul stock market closed up 2.01% at 73,946 points - the highest close in 2014 - outperforming emerging markets peers.
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