Turkey stock market trading suspended after benchmark index falls 7%

Trading on Turkey’s stock market was suspended on Wednesday morning after the country’s benchmark index fell 7 per cent, extending a steep slide from the previous day triggered by this week’s devastating earthquake.

The Bist 100 fell 7.1 per cent in morning dealing, twice tripping a “circuit breaker” that is in place to smooth tumultuous activity. Trading typically resumes following a brief suspension, but Refinitiv data showed no movement in the index from around 10.40am local time (7.40am GMT). 

The Bist 100 has tumbled 16 per cent this week after an earthquake and aftershocks in the south-east of the country killed thousands of people, injured many more and destroyed buildings over a vast area.

Borsa Istanbul, the exchanges operator, declined to say when trading would resume.

Murat Gulkan, chief executive of OMG Capital Advisors in Istanbul, said trading in the share market had been suspended indefinitely. He said trading in other instruments, including bonds, was still active.

The Bist 100 was among last year’s best-performing markets, rising roughly 200 per cent as retail traders sought returns during a severe cost of living crisis. It had begun falling even before this week’s earthquake, however, with investors worrying about upcoming elections in May as well as the government’s unorthodox policy of holding interest rates low despite very high inflation.

“A change in government might mean there’s a greater focus on bringing inflation down more substantially with higher rates, which would be bad for equities,” said Timothy Ash, emerging markets strategist at BlueBay Asset Management.

The lira was steady against the US dollar on Wednesday at 18.831, having flatlined against the greenback since last summer thanks to government measures designed to stabilise the currency ahead of this year’s elections.

Despite falling to a record low in 2022, “there’s an assumption that the lira is massively overvalued”, Ash said. “Whoever wins [the election], the currency will have to adjust.”

Turkey last year raised more than $9bn on international markets and issued a $2.75bn bond in January at a yield close to 10 per cent. Yet while bonds issued by other emerging markets have rallied in recent months, Turkey’s have remained relatively subdued, according to Sergei Strigo, co-head of emerging market fixed income at Amundi.

“Turkey has many vulnerabilities. Foreign exchange reserves are very low, which is affecting the performance of Turkish assets,” Strigo said. “Turkey does have market access and its debt-to-gross domestic product is still quite low, but borrowing costs are elevated and investors aren’t sure the central bank can bring inflation back under control.”

Turkey’s inflation rate fell to 57.7 per cent in January, having declined for three months in a row after hitting 85.5 per cent in October. “The scale of the slowdown does not change the fact that inflation remains very high and a struggle for normal people,” said Professor Yaprak Gürsoy, chair of contemporary Turkish studies at the London School of Economics.

Liam Peach, senior emerging markets economist at Capital Economics, estimated that the 10 Turkish provinces most affected by the earthquake and aftershocks account for 15 per cent of the country’s population, 9 per cent of total gross domestic product, 15 per cent of agricultural output, 9 per cent of industry and between 6 and 8 per cent of external trade.

Efforts to repair the earthquake damage would inevitably squeeze the public finances, he added, but aside from the human tragedy “the damage to critical infrastructure for the economy as a whole does not appear huge”. 

“Access to international capital markets will depend more on Turkey’s macro fundamentals, country risk premium and global risk appetite than the extent of earthquake damage and cost of reconstruction,” Peach said.