ISTANBUL: Turkish shares fell on Monday, led lower by automotive and drinks companies, after those sectors were hit by new taxes imposed by the government which is struggling to keep its borrowing down.
The increases in special consumption taxes covering oil products, cars with smaller engines and some alcoholic beverages came after Deputy Prime Minister Ali Babacan said last week that the government would miss its budget deficit target this year.
Automotive Distributors Association Executive Coordinator Hayri Erce said sales would be hit by the rise, especially next year when prices are more likely to reflect the changes.
"The tax hike will impact profit margins, we will also revise our sale projections for the year-end downwards," Erce told Reuters.
Shares in automotive companies traded lower, with Ford Otosan down 2.4 percent, Dogus Otomotiv down 1.8 percent and Tofas down 3.2 percent. Shares in the biggest beer maker Anadolu Efes were also down 2.26 percent.
"We do not expect a significant negative impact on passenger car demand as we believe that the 2.2 percent increase in retail prices is to small to have major impact on demand," EkspresInvest wrote in a research note.
"We would expect this increase to be passed on to the consumers gradually but absorbed by the companies initially, having a slight negative impact on margin," it added.
The hike will also take its toll on Turkey's inflation outlook.
"We calculate the combined effect of tax increases on inflation at 0.5 percentage points," Finansbank economists wrote in a research note.
"Overall, the weekend's fiscal measures increases the likelihood that year end inflation will be above 7 percent," Finansbank noted.
Istanbul's main share index was 0.47 percent down at 67,572 points, in line with a 0.34 percent fall in the MSCI emerging markets index.
Turkey's two-year benchmark bond yield closed at 7.45 percent, a touch down from Thursday's close at 7.47 percent.
The Turkish treasury sold 963.9 million lira ($537.14 million) on Monday at 8.61 percent through the auction of its September 14, 2022 bond, in line with a Reuters forecast of 8.60 percent.
By 1030 GMT, the lira was at 1.8016 against the dollar , slightly weaker than 1.7954 late on Friday. Against its euro-dollar basket, it was almost flat 2.0632.
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