Turkey scrambles to protect markets from war shocks

• Government taking ‘all necessary steps’
• Bank brings in foreign exchange measures
• Short selling banned until March 6

Turkish officials have moved to shield the country’s markets from volatility triggered by joint US-Israeli strikes on Iran and Tehran’s subsequent response.

Turkey’s central bank headed off any cash crisis in the markets, issuing a statement on Sunday night that it was “starting lira-settled foreign exchange forward selling transactions amid the regional conflict’s impact on markets”. 

The measure would ensure the sound functioning of the foreign exchange markets and to prevent possible volatility in exchange rates and stabilise foreign exchange liquidity, the bank said. 

The economy had the resilience to weather any external shocks, treasury and finance minister Mehmet Şimşek said on social media, adding that the government would take “all necessary steps” to ensure market stability.

The central bank’s move and injection of foreign currency into the market helped keep the lira steady at just under 44 to the dollar on Monday, roughly the same as last week. 

Unlike some markets in the Gulf, notably Abu Dhabi and Dubai, Turkey’s Borsa İstanbul rang the bell for trading Monday morning as scheduled.

Prior to opening, market regulator the Capital Markets Board announced a ban on short selling until the close of trading on March 6.

The move did little to take the heat out of early trading, with the blue chip BİST 100 index plunging more than 5 percent within 15 minutes, before rebounding somewhat, down around 3.5 percent in the first session. 

Sub-indices such as tourism and transport continued to weigh on the broader trading boards, both down almost 7 percent in early trading, reflecting concerns over travel and freight disruptions, especially to energy supplies, with oil prices trading up 10 percent by mid-Monday. Listed shares in the banking sector fell nearly 6 percent in pre-lunch trading. 

The ripples from the Gulf impacted the Istanbul market far more than those in Asia, with Japan’s Nikkei and Hong Kong’s Hang Seng both down 2 percent and the Shanghai Stock Exchange marginally up.

News on the Iran conflict

• Hormuz tensions snarl trade, causing ship diversions
• Gulf stocks tumble for second day and bond prices slide
• Conflict forces Emirates to extend flight cancellations

Some of this movement is due to the Istanbul exchange having a quite shallow ownership pool, with high-profile portfolios in the hands of relatively few investors, according to Iris Cibre, financial markets executive and founder of Phoenix Consultancy.

“Because of this, the potential for movement in Turkish markets is bigger,” she said.

The conflict may also limit the central bank’s options on interest rates, with the reserve’s monetary policy committee scheduled to meet on March 12. 

Prior to the weekend, forecasts were for another reduction in the bank’s key lending rate, which currently stands at 37 percent after the committee instituted a 100 basis point cut at its January meeting. 

“As a country we are highly susceptible to natural gas and oil prices fluctuations, which would increase inflation but more importantly it holds the potential to impact the central bank’s interest rate decisions,” Cibre said. 

“Expectations are firming around the central bank not having the power to cut in March, which will in turn impact the stock market.”