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Turkey Investors Use Moments of Calm to Extend Equities Rally

Tugce Ozsoy
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Turkey Investors Use Moments of Calm to Extend Equities Rally

(Bloomberg) -- Turkish stocks climbed to a 19-month high Monday as investors treated the absence of negative triggers as a buying opportunity.

The benchmark Borsa Istanbul 100 Index added as much as 1.5%, surging to levels not seen since April 2018. An increased appetite for riskier assets prompted by optimism over U.S.-China trade talks, coupled with declining inflation and recent rate cuts have all helped the rally.

Plus, various scenarios likely to cause anxiety among traders have failed to materialize, creating positive sentiment for stocks, even if money managers said the upbeat mood was delicate.

For the moment, the principle of “no news is good news” holds for stock markets, said Anastasia Levashova, a fund manager at Blackfriars Asset Management in London. President Recep Tayyip Erdogan’s White House visit generated few headlines, even after he ruled out canceling Turkey’s order of a Russian missile-defense system. That’s an encouraging development, she said.

“It seems like behind the scenes there’s some mutual understanding and talks are going on,” Levashova said. “Cyclically, inflation is improving. So at the end of the day, the current calm is what has been driving the rally.”

Rather than a positive turning point for Istanbul stocks, recent gains resemble a “bear-market stealth rally” for Investec Plc trader Julian Rimmer, with investors’ deepest fears averted for the time being -- sanctions representing the greatest of those threats.

“The market seems to have become more phlegmatic about geopolitical risks, which it has parked for the time being,” Rimmer said in emailed comments. “This is dangerous, however, because none of them has been resolved. International investors remain wary of these vulnerabilities, and so they should.”

Ratings Boost

The risk of economic sanctions from the U.S. and the European Union and the case brought against Turkiye Halk Bankasi AS in New York following Turkey’s ground offensive in northern Syria led to a sharp pull-back in Istanbul equities in October. But, with the punitive measures turning out to be milder than feared, continued Ankara-Washington dialog over Syria and a raised outlook from Fitch Ratings on Turkey’s sovereign assessment, there has been enough sentiment-boosting news to reassure buyers and revive the advance in stocks.

Those developments haven’t diminished the potential threats for foreign investors, said Rimmer. “Inadvertently, Erdogan has made Turkey something of a political football in the U.S. and that elevates the risks markedly,” Rimmer said, referring to calls from many Washington senators for more challenging sanctions on the country.

For Levashova, the main worry is that there is “not enough being done” to resolve Turkey’s macro-economic challenges. “Lawmakers are rather enjoying the benign global environment. But how the economy will be shaped in 2020 and 2021 is very much dependent on what will be done over the next six to nine months. So there is still risks that things could quickly deteriorate,” she said.

To contact the reporter on this story: Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, ;Onur Ant at oant@bloomberg.net, John Viljoen, Jon Menon

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