Turkish stocks fell the most in the world while the lira and government bonds dropped on concern higher Federal Reserve interest rates next year will curtail appetite for riskier assets.
The Borsa Istanbul 100 Index slumped 1.8 percent at 3:36 p.m. local time, the biggest retreat among more than 90 benchmark indexes. Two-year notes slid, driving yields up 16 basis points to 9.24 percent, the highest level since Aug. 22. The lira weakened 0.4 percent to 2.2332 against dollar, the lowest since March.
Turkish assets have come under pressure this month, with the lira posting the third-biggest drop in emerging Europe and Africa, as investors weighed prospects for the Federal Reserve to start increasing borrowing costs. Fed policy makers yesterday raised their estimates for future interest rates, while retaining a pledge to hold them near zero for a “considerable time.” Turkey is among countries most vulnerable to shocks from higher U.S. rates, Fitch Ratings said this month.
“The Fed’s decision has a high probability of raising volatility in the markets of countries with high financing needs,” Ali Cakiroglu, a strategist at HSBC Asset Management in Istanbul wrote in an e-mailed note. “This shows the pressure on Turkish asset prices may continue in the coming period.”
Turkey’s current-account gap was 6.6 percent of gross domestic product at the end of the second quarter, the most among 11 emerging markets in Europe and Africa, according to data compiled by Bloomberg. This led Morgan Stanley to place the country among its so-called Fragile Five nations that are most vulnerable to fluctuations in foreign cash flows.