Turkish shares close lower, bonds pick up

ISTANBUL: Turkish bonds and the lira recovered on Thursday thanks to strong lira buying in the London market, while shares closed slightly lower as investors were cautious ahead of public holidays and a key speech by the head of the Federal Reserve.

Emerging markets like Turkey could benefit from extra capital inflows if Fed chairman Ben Bernanke, in a speech on Friday, signals the Fed could provide more stimulus for the US economy. Investors, however, were taking the view he might flag a readiness to act rather than announce any imminent measures.

The lira closed at 1.7615, compared to 1.7770 at Wednesday's close, after weakening to 1.771 in morning trade.

"We see London on the sell-side (dollars). Forecasts for the total amount sold are nearly $500 million," Tufan Comert, a strategist at Garanti Securities, said in a note. "The general outlook indicates foreign investors are reducing their foreign-exchange positions. The main reason for this is the long holiday week and concerns about a possible lack of liquidity during the days when markets will be open."

Turkish markets will be closed from midday on Monday until Friday, Sept. 2 for Ramadan celebrations.

"If tomorrow Bernanke's speech is not market-supportive, the lira could reverse its gains. However if foreign investors continue to sell dollars tomorrow, then the lira could strengthen to the 1.7500 level versus the dollar," Comert said.

The Turkish central bank sold $70 million in its daily forex-selling auction on Thursday where bids amounted to $162 million. The minimum price was at 1.7659 to the dollar.

"The Turkish central bank understands market expectations very well and amounts that the bank sells in daily forex auctions are positive for markets. The negative decoupling of Turkey has turned into a positive one today, something we haven't seen in a long time. The Turkish bond market is also seeing a positive trend compared to its peers," said a forex trader.

The benchmark May 15, 2013 yield stood at 7.93 percent on Thursday, slightly below a previous close of 7.98 percent.

Bond investors took profits earlier this week after the central bank held its key rates unchanged in a move aimed at supporting the ailing lira, which has weakened by 14 percent against the dollar this year.

Share prices lost steam in late trade and signs that Turkey's economy is slowing, after its 11 percent year-on-year surge in the first quarter, persisted.

The manufacturing index fell to 109.8 points in August from 114.1 points a month earlier according to data released by the central bank.

"We expect the slowdown in the economy to become more pronounced in the forthcoming period and the manufacturing confidence index to decrease further," said Gizem Oztok Altinsac, economist at Garanti Securities.

FENERBAHCE SHARES PLUMMET

Finance Minister Mehmet Simsek, in an interview with CNBC-e television, said economic growth was expected to have slowed in the second quarter from the first quarter.

He also said the central bank's target of capping loan growth at 25 percent, to curb surging domestic demand, was not currently reasonable "because ... the current economic ambiguity will impact loan demand and supply."

Since December, the central bank has suggested that loan growth should be capped at 25 percent to narrow a current account deficit that has reached alarmingly high levels.

Turkish shares closed in negative territory, in line with MSCI emerging markets index, which was down 0.44 percent as investors were cautious ahead of Bernanke's speech.

The main Istanbul share index closed down 0.16 percent to 52,967.67 points.

Shares of soccer club Fenerbahce tumbled 18 percent after being excluded from this season's UEFA Champions League over a match-fixing investigation.

Shares in Black Sea club Trabzon, which replaced Fenerbahce after Fenerbahce was barred, surged 21.8 percent after the club said it expected income of 20 million euros from playing in the Champions League competition.

Conglomerate Sabanci Holding, which has interests in energy and banking, bucked the market, rising 2.1 percent to 5.78 lira after second-quarter net profit rose by two thirds as performance in its non-financial units improved.

Copyright Reuters, 2011