Turkey is throwing its full weight behind stocks before the planned resumption of trading at the nation’s key equity market on Wednesday.
(Bloomberg) — Turkey is throwing its full weight behind stocks before the planned resumption of trading at the nation’s key equity market on Wednesday.
The government is channeling billions of liras from pension funds and state lenders into the stock market and planning tax waivers for buybacks, according to officials with direct knowledge of the matter.
Turkey Wealth Fund to Support Equities With New Mechanism
The scope of measures shows authorities are determined to reverse the rout that erased tens of billions of dollars from Turkish companies’ market value in the two days following Feb. 6 earthquakes that devastated much of the country’s southeast. The main index was already the world’s worst performer this year before the disaster induced a selloff that sent it into a technical bear market.
Trading was suspended last week and is scheduled to begin again on Wednesday.
Treasury and Finance Minister Nureddin Nebati met with heads of the central bank, regulators and state lenders on Monday to discuss how to mitigate the economic and market fallout from the temblors. While some officials had been weighing an extension to the trading halt, the meeting’s outcome was to establish Turkey’s equivalent of the “plunge protection team.”
It’s similar to a moniker given to the US president’s working group that was formed in the aftermath of the stock market crash of 1987. While its official mission is to advise the president during times of turbulence, critics fear its unofficial task may be to support the stock market.
A pair of exchange-traded funds tracking Turkish stocks in Europe and the US, which were still trading after the Turkish gauge was suspended, rose on Tuesday. The UK-traded iShares MSCI Turkey UCITS ETF rose 3.8% as of 12:13pm in London, while the US-traded iShares MSCI Turkey advanced 1.7% in US premarket session.
Other Measures
Authorities suspended trading on Feb. 8 and canceled trades made that day after the earthquakes destroyed large parts of 10 cities in Turkey. Officials decided against canceling transactions that took place during the two days following the quakes.
The nation’s sovereign wealth fund, known as TVF, is setting up an internal mechanism to support stocks during times of volatility, the officials said, asking not to be identified because the decisions have not been made public. The internal fund will get most of its capital from state lenders and will be buying stocks on the market, the officials said.
Turkey will also temporarily revoke the so-called withholding tax — currently 15% — that listed companies need to pay when they buy back their shares. The move is expected to boost share buybacks and support the Borsta Istanbul 100 index, one of the officials said.
In addition, private pension funds that receive a government match of up to 30% of individual contributions will be required to use the government contribution for stock purchases, according to regulation published in Official Gazette on Tuesday.
The government’s contribution to those funds now stands at about about 50 billion liras ($2.7 billion), according to most recent data on Turkey’s Pension Monitoring Center website.
The new regulation is expected to channel around 9 billion liras of those funds into Turkish stocks over the next 10 days, according to Mehmet Gerz, the chief investment officer at Ata Portfoy in Istanbul.
Two state-affiliated companies ramped up share buyback programs last week as the market rout deepened in the two trading days following the quakes. Telecommunications company Turk Telekomunikasyon — known as Turk Telekom — announced a new buyback program, and mobile-phone operator Turkcell Iletisim Hizmetleri AS boosted its buyback allocation.
Lenders Turkiye Halk Bankasi AS and Turkiye Vakiflar Bankasi TAO, along with insurance firm Turkiye Sigorta, also accelerated up their buyback programs.
In an attempt to mitigate the economic fallout from last week’s disaster, Turkey also decided to temporarily suspend some of its gold imports, according to one of the officials.
The Treasury and Finance Ministry has finalized the regulation that will force a pause in gold purchases from abroad that fall into the category of “cash against goods,” the official said.
Gold imports were among the biggest drags on Turkey’s external finances in the months before the temblors. Turks invested in the precious metal as a hedge against rampant inflation and steep declines in the lira last year, taking annual imports to over $20 billion.
“I’d expect the measures to reduce selling pressure in the market rather than stopping the drop in the index,” said Gokhan Uskuay, a fund manager at Istanbul-based portfolio manager Allbatross Portfoy. “The index will probably continue to drop before rising again following a decline in volatility.”
–With assistance from Ugur Yilmaz, Tugce Ozsoy and Philip Sanders.
(Adds London-traded ETFs’ move in 7th paragraph and a new market quote in last paragraph)
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