The Turkish currency, Lira, regained a part of its value on July 18, after it suffered losses on Friday night. The dip in its value was due to an attempted military coup. The five percent drop was Lira’s sharpest since October 2008- the apex of the global financial crisis. Monday trading saw the currency at an up of 2.78 percent to touch 2.9326 against the US Dollar. Bonds and stocks opened lower.
There was a drop of 2.6 percent in Instanbul 100 Index, the maximum in approximately three weeks. Previously, Turkish stocks went up more than 10 percent in two weeks after the UK voted to leave the European Union. The 10 year government bonds yield went up 43 basis points to reach 9.52 percent.
The present crisis has complicated the recovery of Turkish assets which are severely impacted by slowdown in inflation. Central banks around the world are now wary of pumping cash into the country. It means no rebound will last long. This is due to resurgence of the political risk.
According to Piotr Maty, strategist, Rabobank in London, damage has already been done. He said that events have negatively impacted the previous forecast of the Lira staying below three for every dollar in 2016. He added that it is expected by Rabobank that the Turkish assets will suffer short term vulnerability and the currency will continue to remain volatile in the coming days. In case the rule of law is not properly established, there could be an outflow of capital.
The bank shares in the Istanbul index dipped seven percent- the largest decline in a period of one year. Investors also offloaded stocks related to the Turkish tourist industry. The industry, even before the coup, suffered from a number of terrorist bombings that shook the nation. TAV Havalimanlari Holding AS, the airport operator, dropped 13 percent. There was also a drop of eight percent in Turkish Airlines.
Bonds also dipped, with yield on the dollar bond of Turkey due on February 2045, going up by 18 basis points. Cost of insuring the exposure to the Turkish debt went up, with the credit default swaps of five years widening by 17 basis points to touch 242. The debt had dipped to its lowest during the second week of July.
Goldman Sachs also lowered its forecasts for Turkish Lira during the July second weekend. It said that the Lira will slide to reach 3.10 percent for every dollar within the coming three months.