Turkish Stocks Still Have Room to Heal After Best Month of Year

(Bloomberg) -- Turkish stocks are finally showing signs of life as calm returns on the monetary policy front, but there’s still a long way to go to reverse the slump in March.

Heartened by the lira’s gains since the central bank failed to act on President Recep Tayyip Erdogan’s pleas for a July rate cut, investors have driven the Borsa Istanbul 100 Index up almost 5% in August, with banking stocks surging more than 8%. 

Both equities and the lira have a long trek to unwind the damage wrought by Erdogan’s shock firing of the nation’s hawkish central bank chief in March. Even after the August gains, the BIST 100 Index of stocks trades at a 60% discount to the MSCI Emerging Market Index and is down 1.1% for the year. 

The lira is the worst performer among major EMEA currencies in 2021 with an 11% slump against the U.S. dollar.

But Coex Partners and Bank Julius Baer say the advance is safe for now -- assuming no local rate cuts before the end of the year or surprise moves to dial back stimulus in the U.S. 

“Policy makers keep telling us they will keep policy where it is until they see significant disinflation,” Coex Partners’ Henrik Gullberg said. “While people don’t necessarily take them at their word, at least it provides some reassurance over the next one to two months.”

Foreign currency inflows, a lack of impending foreign debt payments, as well as a period of relative geopolitical calm, have also played a role, said Mathieu Racheter, head of equity strategy at Bank Julius Baer in Zurich. 

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