Turkish equities and country-specific exchange traded fund are among the worst performers among developing economies, and the market continued to sink lower Tuesday after the central bank failed to instill confidence in investors.
The iShares MSCI Turkey ETF (NYSEArca: TUR) slipped 2.2% Tuesday to a new 52-week low and has declined 25.2% year-to-date.
The Turkish markets further weakened Tuesday, despite the central bank’s call to action. The national central bank published a “road map” of nine technical adjustments that Turkey would implement for normalization of the global monetary policy, but it fell short of investors’ expectations, Bloomberg reports.
“The strategic plan is disappointing,” Guillaume Tresca, a senior emerging market strategist at Credit Agricole, told Bloomberg. “The market was expecting more, and I have the impression that the central bank is just trying to justify saying to the markets that it’s ready to face a Fed rate hike, without really announcing anything new.”
Today’s decision was the central bank’s last chance to act before the Federal Reserve’s policy meeting on September 17, which many expect will reveal the first U.S. rate hike in almost a decade.
Consequently, investors dumped Turkish assets, pushing the lira down as much as 1.3% to a record 2.9066 per dollar and yields on two-year government debt to 10.68%, its highest in over a year.
TUR, though, has experienced slight inflows of $47.8 million so far this year and a little over $2 million this month, according to ETF.com, which suggests that ETF investors believe the economy can turn around or at least the market is attractive after the constant selling pressure. [Contrarians May See Opportunity in Turkey ETF]
Meanwhile, foreign investors have already dumped $4 billion in Turkish bonds this year, the most on record, contributing to a 19% decline in the Turkish lira against the USD and pushing up yields on two-year debt two-and-a-half percentage points, the most among major markets.
The central bank is under increased pressure to act in order to assuage market fears and prop up the quickly depreciating lira currency, especially in an uncertain political climate where there is rising risk of a snap election – President Tayyip Erdogan could call for a snap election on August 23 if a coalition government has not formed. The government has been the most vocal about cutting interest rates to stimulate growth.
“After today’s decision, another round of questioning will start on the independence of the central bank,” Isik Okte, a strategist at TEB Invest, told Bloomberg. “With political uncertainties on the rise and Fed rate hike cycle around the corner, this is the last thing Turkey needed.”
iShares MSCI Turkey ETF
For more information on Turkey’s economy, visit our Turkey category.
Max Chen contributed to this article.