Goldman, JPMorgan Among Banks Turkey Bans From Short-Selling

Turkey banned six foreign banks from betting against the nation’s stocks in a move that appeared to contradict recent steps toward easing such restrictions. Shares in Istanbul gained, tracking an advance across emerging markets Monday.

Goldman Sachs Group Inc., JPMorgan Chase & Co., Merrill Lynch International, Barclays Bank Plc, Credit Suisse Group AG and Wood & Co. have been barred from short-selling stocks for up to three months, Borsa Istanbul said in a statement.

The announcement comes less than a week after Turkey’s Capital Markets Regulator removed a short-selling ban on the largest listed companies, easing a blanket restriction introduced in February to help shield the markets from bouts of volatility. MSCI Inc. warned last month that it may start consulting on reclassifying the MSCI Turkey Index to frontier-market or stand-alone status if the “already deteriorating accessibility level of the Turkish equity market were to worsen.”

Turkish authorities have already burnt bridges with foreign investors by drastically limiting their access to the currency and making it difficult for them to trade Turkish assets. Earlier this year, the banking regulator briefly barred local lenders from trading liras with Citigroup Inc., BNP Paribas SA and UBS Group AG.

“When you are not winning the game and you control the rules, you change them,” said Hasnain Malik, the head of equity strategy at Tellimer in Dubai. “Turkey has been doing that in the currency and equity market over the last year. This will also add weight to fears that an MSCI downgrade is on the way, ultimately.”

Goldman, JPMorgan Among Banks Turkey Bans From Short-Selling

The heavy-handed approach has compounded an outflow of capital, with foreign investors pulling $4.4 billion from Turkey’s equity market over the past 12 months, the biggest exodus since at least 2015. The head of the country’s brokers association said last week that foreign ownership of stocks has fallen to 52% from 65%. Residents have largely replaced them, with a wave of local buying propelling Turkish stocks more than 10% higher last month, among the best-performing markets globally.

Turkey isn’t the only country to deploy short-selling bans: regulators in Spain, Italy, Belgium, France, Greece and Austria imposed temporary curbs in mid-March during the coronavirus-driven market rout, arguing that such trading could exacerbate the steep declines in equity markets. But those restrictions were ended in a coordinated move half way through May and haven’t been renewed.

“Anything that makes a market more opaque is bad news for investors,” said Nigel Rendell, a senior analyst at Medley Global Advisors LLC in London. “The market becomes less attractive and it heightens the chances that the authorities will introduce other liquidity restrictions in the future.”

Goldman Sachs, Credit Suisse, Bank of America Merrill Lynch and Barclays declined to comment on the Turkish short-selling ban. Spokespeople at JPMorgan and Wood didn’t immediately reply to requests for comment.

The Borsa Istanbul 100 Index jumped 2.4% on Monday, the most in two months and in line with MSCI’s gauge of emerging markets, advancing as investor optimism over economic stimulus outweighed concerns about rising coronavirus cases.

Here’s more of what Tellimer’s Malik had to say:

  • “The quick effective re-imposition of the short-selling ban will add to top-down concerns on market-unfriendly policies, which are putting foreigners off Turkey’s excellent corporates.”

More from Medley Global’s Render:

  • Timing of the move is “somewhat surprising for several reasons:”

    • Foreign participation in the Turkish equity market is low at the moment
    • The equity market is doing reasonably well, it is now broadly flat since the start of the year, so there’s next to no selling pressure
    • It comes in the face of the MSCI warning that Turkey could be relegated from emerging-market status -- the premier league -- to the frontier division
  • “Investors are concerned by the continuing inflation problems in the wake of rapid cuts in interest rates over the past 12 months. Credibility over monetary policy is still sadly lacking, which adds to downside risks to the currency over the medium term.”
  • “For many, there are more attractive markets than Turkey at present. By imposing these latest bans on short selling, it seems that the authorities bizarrely want to reinforce this view.”

Views from Timothy Ash, a strategist at BlueBay Asset Management LLP in London:

  • The ruling “will not help the mood music around Turkey on the part of foreign institutional investors, which have very significantly headed to the exits already.”
  • “I think many portfolio investors are asking themselves do the Turkish authorities still want them/us in their local markets?”

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