Azernews.Az

By Bloomberg

The lira extended its slump and stocks headed for a bear market as a rout in emerging markets deepened, adding to pressure on Turkish assets as the country heads for its second parliamentary election in six months.

The lira depreciated as much as 2.3 percent to 2.9865 per dollar on Monday, before trimming its drop to trade at 2.9381 per dollar at 11:47 a.m. in Istanbul. The currency is the third- worst performing in emerging markets this year with a 21 percent retreat. The Borsa Istanbul 100 Index of stocks fell 2.1 percent, taking its drop since a peak in January to 21 percent.

Currencies across developing markets have weakened amid speculation the slowdown in China is worsening and as the U.S Federal Reserve prepares to raise interest rates for the first time since 2006, fueling capital outflows. Turkey is headed for a fresh vote after inconclusive elections in June failed to hand any one party an outright majority, compounding the pressure on Turkish assets.

“The lira is not able to run away from the selloff in emerging markets, coupled with lower commodity prices and the China rout,” Ibrahim Aksoy, an investment strategist at HSBC Asset Management in Istanbul, said by e-mail. “The political situation and doubts over whether monetary policy will act to protect lira are making the Turkish currency more vulnerable.”

3 Per Dollar

Pressure is mounting on the central bank to act to bolster the lira after the currency fell to record intraday lows for six consecutive days through Thursday last week. The selloff worsened Tuesday when policy makers kept interest rates on hold for a sixth month and the next day signaled they may not raise borrowing costs before the Federal Reserve.

The lira weakened 2.9 percent last week, and broke through 3 per dollar for the first time on Thursday.

“Once investors start to panic, it’s very difficult to predict the bottom and history would suggest that the market generally overshoots in these times of market stress,” Doug Bitcon, a Dubai-based fund manager at Rasmala Investment Bank Ltd., said by e-mail. “Turkey is caught up in the widespread run on emerging-market currencies compounded by their own political uncertainties. Investors hate uncertainty.”

The yield on 10-year government bonds rose 10 basis points to 10.37 percent, the highest since April 3 2014 on a closing basis. Turkish five-year credit default swaps -- contracts insuring against debt default -- climbed for a 10th day, adding 6 basis points to 284, CMA prices show.

Bear Market

The benchmark index of stocks dropped to 72,234.63, extending its decline to a sixth day. Akbank TAS, Turkey’s second-largest bank by market capitalization, led the retreat, falling 2 percent. Turkiye Petrol Rafinerileri AS fell 2.7 percent, set for its biggest decline since June.

“Turkey had its internal problems, but this last leg down has more to do with rapidly deteriorating global sentiment,” Kerem Baykal, a fund manager at Istanbul-based Ak Portfoy, said by e-mail. “The only thing that can save the day is a coordinated policy response. It seems as if investors are trying to rush out through the same door all at once and situations like these never end quickly,”