Turkish shares open down following attempted coup

Shares in Istanbul have opened down by 2.5 per cent following Friday's attempted coup in Turkey.

The Turkish lira, which initially fell by nearly 5 per cent, has recovered much of its lost ground and has risen by 3 per cent so far on Monday.

The Turkish lira strengthened, paring losses triggered by the thwarted coup attempt that broke out in the final hours of trading last week.

Stocks and bonds slumped as markets opened for the first time since the crisis erupted.

The currency gained 2.8 per cent to 2.9326 per dollar as of 10:14am in Istanbul on Monday, trimming the 4.6 per cent plunge on Friday night, when tanks rolled through the streets of Ankara and Istanbul as a breakaway faction of army officers said they had assumed control of the country.

The Borsa Istanbul 100 Index declined 2.6 per cent, the most in more than three weeks, and the yield on 10-year government bonds soared 43 basis points, the most in three years, to 9.52 per cent.

The short-lived putsch erupted about two hours before trade in the Turkish currency stopped for the weekend and sent the lira tumbling by the most in eight years.

Investors will probably buy assets as they decline before assessing any longer-term damage to the economy, according to Tatha Ghose, a London-based analyst at Commerzbank.

”Prices will likely be volatile for some time, but in the end, investors will likely use this as a buying opportunity,” Ghose said on Sunday before trading in the lira began.

“The main question for investors now is whether or not there will be a residual impact on Turkey’s long-term risk premium.”

The currency is likely to strengthen to 2.95 or even 2.90 per dollar, Ghose said in an e-mailed report before trading started.

The lira ended last week at 3.0157 per dollar, about 2 per cent short of the record low of 3.0752 per dollar reached in September. Goldman Sachs is less sanguine.

The investment bank lowered its forecasts for the lira over the weekend, saying the currency will slide to 3.10 per dollar within three months, revising its earlier forecast of 2.95.

"While the immediate level of uncertainty has been sharply reduced post the failure of the takeover and a renewed coup appears unlikely, we expect the level of political risk will remain elevated and hence have implications for the economy," Clemens Grafe, a Moscow-based economist at Goldman, wrote in a report.

In an effort to quell investor concern, policy makers said Sunday they will provide unlimited liquidity to banks and support the lira by removing limits on foreign currency deposits that commercial lenders are allowed to use as collateral. While the coup attempt may have a negative impact on Turkey, especially its tourism industry, reforms will now be easier to carry out, deputy prime minister Mehmet Simsek said.

The central bank is scheduled to hold a policy meeting Tuesday.

The Turkish central bank has lowered the overnight interest rate by 175 basis points this year amid slowing inflation, supporting a rally in Turkish assets.

The yield on Turkish five-year local currency bonds has dropped more than every other emerging-market nation this year except for Indonesia and Brazil. Bloomberg