The Turkish central bank’s unexpected jumbo rate hike on Thursday has sent the country’s banking and non-financial stocks diverging as investors focus on individual impacts across sectors.
(Bloomberg) — The Turkish central bank’s unexpected jumbo rate hike on Thursday has sent the country’s banking and non-financial stocks diverging as investors focus on individual impacts across sectors.
The Borsa Istanbul Banks Index soared 8.5% to a record high, while the broader Borsa Istanbul 100 Index closed 1.5% lower on Thursday as the lira climbed as much as 7.6% per US dollar. The moves came after the Turkish central bank surprised investors with a massive interest-rate hike, sending a strong signal about its promise to return to orthodox policies.
Supersized Rate Hike Spurs Massive Rally Across Turkish Markets
“Rate hikes are normally negative for the stock market, and the prospect of higher deposit rates tend to lure investors away from equities, as well as a stronger currency affecting exporters negatively,” said Burak Isyar, head of research at ICBC Turkey Investment. “However banks are rather a macro call; and a signal toward policy normalization and the prospect of better credit-deposit rate spreads are benefiting them.”
With the euphoria in the lira rally subsiding on Friday, shares of companies with foreign currency income rebounded, while banking stocks retreated as some investors moved to lock in recent gains.
“A rise in deposit rates after the strong interest-rate hike will provide an important alternative to the BIST,” wrote Istanbul-based Seker Investment in a note on Friday. That said, Seker Investment expects the continued negative real interest rate environment and steps taken toward policy normalization to support foreign capital inflows and maintain interest in Turkish stocks.
The lira was trading 2.6% lower at 26.5205 per US dollar as of 11:22am in Istanbul and the benchmark Borsa Istanbul 100 Index was up 0.7%.
Market Metrics
- 10-year benchmark dollar bond yield +2bps to 8.32%
- 5-year CDS -4.9bps to 393bps
- Brent crude +0.8% to $84.01 per barrel
Story Link: : Inside Turkey
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