Domestic political worries and a general sell-off in emerging markets gave Turkey’s main stock exchange index, the BIST-100, its biggest decline in five months and pushed the lira down 1.5% against the dollar to trade at 2.8449 on May 3.
Despite the better-than-expected April inflation data, the main stock exchange index dropped 3.29%, while the benchmark 10-year government bond yield rose to 9.46% from 9.25%.
The Treasury also held two auctions on May 3 to sell a 13-month zero coupon bond and a 10-year fixed coupon bond. Demand for the shorter maturity security was TRY2.38bn. The Treasury sold TRY984mn worth of 13-month bond at an annual compound yield of 9.36%, covering 41.3% of the bids filed. In the 10-year bond, demand amounted to TRY3.99bn while the Treasury covered 66.4% of the bids, borrowing TRY2.65bn at 9.33%. TRY. The low demand at yesterday’s auction underlines investors’ concerns.
Investors are worried that a move by the ruling Justice and Development Party (AKP) to lift the immunity of lawmakers may intensify the Kurdish conflict. The pro-Kurdish HDP thinks the main target of the AKP-sponsored bill that was approved by a parliamentary committee on Monday is its lawmakers. Deputies from the opposition parties Republican People’s Party (CHP) and the Nationalist Movement Party (MHP) also voted in favour of the bill that needs to be further discussed and voted in parliament’s general assembly in the coming days.
President Recep Tayyip Erdogan has repeatedly called for the prosecution of HDP lawmakers, accusing them of being an extension of the outlawed Kurdistan Workers’ Party (PKK).
The AKP’s proposal could pave the way for the trial of HDP lawmakers on terror-related charges. HDP’s co-chair Selahattin Demirtas said on May 3 that HDP lawmakers would defy calls to appear before courts if they face charges.
Clashes between the military and PKK have intensified after the collapse of a two-year ceasefire this summer that plunged Turkey into one of its worst periods of violence since the 1990s. More than 40,000 people have lost their lives in the Kurdish conflict ever since the PKK launched its insurgency in 1984.
Investors are also keeping an eye on the power struggle within the AKP between Erdogan and his Prime Minister Ahmet Davutoglu. Last week, the ruling party’s top decision-making body took the authority to appoint local party officials away from Davutoglu, in a move widely seen as a sign of tension between the two leaders and Erdogan’s attempt to tighten his grip on the AKP.
But AKP officials dismiss any infighting, saying the decision regarding party official appointments was only a technical move. Top AKP officials also dismiss rumours that Davutoglu may consider stepping down, Hurriyet reported.
All eye will be on a meeting today (May 4) between Erdogan and Davutoglu. The two will gather at Erdogan’s presidential place for their regular weekly meeting at 18:00 local time after markets close.
“I think investors large ignored political risk like PKK insurgency, ISIS and our unholy involvement in Syria, as well as the unsustainable status of Erdogan as a titular leader trying to govern the country as if he is the head of state,” economist Atilla Yesilada told bneIntellinews. “The markets are roiled by rumours of Davutoglu resigning or being dismissed by Erdogan, as well as snap elections. I don’t think the sudden sell-off of Tuesday would continue, but the upside is very limited,” he added.