Turkish capital markets hit hard by Libyan turmoil

The risk of unrest spreading from Libya to other Middle Eastern and African nations this week hit Turkish financial markets hard.

Turkish capital markets hit hard by Libyan turmoil

World Bulletin / News Desk

The risk of unrest spreading from Libya to other Middle Eastern and African nations this week hit international as well as Turkish financial markets hard.

The İstanbul Stock Exchange benchmark index (İMKB-100) has taken a hard hit following the political quake in Libya. The bourse could not withstand rising unrest in Libya and the risk of uprisings spreading to other countries like Algeria, Yemen and Morocco, and it fell by 2,076 points to 61,055 points in the first session of Thursday's trading, which means that the loss of stocks, on average, was 3.28 percent, marking the lowest level since September 2010, when it fell to 60,850 points.

The fire has also spread to bourses around the world such as the London Stock Exchange's FTSE-100 index, which fell by 0.7 percent, Frankfurt's DAX by 1.12 percent, Paris' CAC 40 by 0.62 percent, Tokyo's Nikkei by 1.19 percent and the New York-based Dow Jones index fell by 0.88 percent. As investors always look for a reason to buy or sell in capital markets, the current developments in the Middle East and African nations seem to be significantly affecting investors trading behavior. "Investors knew all along that a correction was on its way after the rally, and the turmoil in Libya gave the market a good opportunity to enter one," Makoto Kikuchi, CEO at Myojo Asset Management Japan, told Reuters on Tuesday about Tokyo stocks.

In his remarks to the Haberturk.com news portal, Ak Yatırım (Ak Investment) Research Director Erkan Savran noted that he expects that sales in the stock markets will continue in the short-term, adding that the rising oil prices are the most significant reason behind it. "I think we will witness slightly more correction in the stock market [İMKB-100] and that the index will swing below the 60,000 levels; however, it is hard to predict how much more the bourse will fall," he said.

ING Bank's chief economist, Şengül Dağdeviren, also thinks the current developments in Libya are the most crucial reason behind falling stock markets due to a risk of political instability in the country. "The risk appetite of investors is decreasing and therefore many people are heading towards safe havens. The fall in the Turkish capital markets is basically an outcome of international developments and has nothing to do with domestic developments. I think the fall in the bourse will stop if the markets think that Turkey's 2011 year-end growth predictions will not be corrected downwards from 4.5-5 percent," she told Haberturk.com.

Moreover, the unrest in Libya and the threat of it spreading to other oil-producing countries in the region drove Brent crude to a 29-month high above $113 a barrel on Thursday, fuelling worries about slower global growth and knocking Asian shares lower. London Brent crude jumped $2.55 to as high as $113.80 a barrel for the first time since September 2008, having gained nearly 10 percent in the past four sessions. US crude last traded at around $99 a barrel, a whisker away from Wednesday's high of $100.

"I see more upside on Brent for the moment with prices likely to hit $120 by the end of March," Ken Hasegawa, a commodity derivatives manager at Newedge brokerage in Tokyo, told Reuters. When looking at the effect of rising oil prices on Turkey's balance of payments, experts underline that every $10 price hike will expand the current account deficit of the country by $4 billion, the Turkish Economy Bank (TEB) stated in its daily economic bulletin. "However, considering the fact that Turkey's exports to the troubled countries in the Middle East and Africa are not great, Turkey's trade balance does not face a risk in the long term," the bulletin added.

FinansInvest's Domestic Markets Sales Department head Fatih Keresteci focused on the possibility of a domino effect due to the unrest and stated to Reuters that oil prices could rise much more if uprisings spread to Saudi Arabia -- the world's most important oil-exporting country. On the other hand, Turkish Energy Minister Taner Yıldız said there will be no hikes in electricity and natural gas prices, despite the developments in Libya.

Turkish lira down

As the fall in the bourses continued on Thursday, the Turkish lira also depreciated against a basket of currencies. The dollar and the euro appreciated by 0.37 and 0.59 percent against the national currency and stood at TL 1.6083 and TL 2.2174, respectively.

One reason behind the depreciation of the lira could be explained by a rise in the parity -- the relationship between the dollar and the euro. The euro/dollar parity was up by 0.33 percent and came in at 1.3787 on Thursday. Since the euro was up more than the dollar in the parity, the effect on the Turkish lira was similar -- the increase in the euro against the lira was more than the increase on the dollar against the lira.

Another reason behind a depreciating lira is the hard falling İstanbul bourse -- as investors try to escape from the "burning financial markets" to countries considered more of a safe haven, such as the US, they sell liras and buy dollars or euros, which result in a depreciation of the national currency.

Güncelleme Tarihi: 25 Şubat 2011, 10:10