US embassy cable - 03ANKARA7389

UNCLAS ANKARA 007389 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/IFD, AND EUR/SE 
TREASURY FOR OASIA - JLEICHTER AND MMILLS 
NSC FOR MBRYZA AND TMCKIBBEN 
 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, TU 
SUBJECT: TURKISH FINANCIAL MARKETS RECOVER IN POST-HOLIDAY 
TRADING 
 
 
REF: ANKARA 7273 
 
 
1. (U) Summary: In the first full trading day following the 
Istanbul bombings and a week of local holidays, Turkish 
financial markets more than recovered, with stocks rising 9.5 
percent December 1, the lira strenthening, and interest rates 
resuming their downward trend.  On December 2, equity markets 
rose 1.6 percent, however the picture was more mixed in the 
foreign exchange and debt markets. End Summary. 
 
 
2. (U) In the initial minutes after the second wave of 
Istanbul bombings November 20, the IMKB 100 index fell over 7 
percent and the stock exchange ceased trading (reftel). 
Since it remained closed on Friday, November 21 and the week 
of November 24-28 (due to the week-long Bayram holiday), only 
on December 1 did the stock exchange reopen and the debt and 
foreign exchange markets return to normal trading volumes. 
With no further bombings in the interim, and the economic 
outlook unchanged with the possible exception of the tourism 
and travel sectors, markets seem to have returned to normal. 
 
 
3. (U) At the opening December 1, markets leaped forward, 
wiping out their November 20 loss in morning trading, before 
closing up 9.51 percent at 16,007.  Bank stocks, which have 
been benefiting from favorable earnings announcements in 
recent months, led the way, with the leading banks' stocks 
increasing between 12 and 14 percent.  On Tuesday, the stock 
index resumed its forward march, rising 1.6 percent to 16,242. 
 
 
4. (SBU) The foreign exchange market was similarly bullish on 
December 1.  Unlike the stock market, the foreign exchange 
and government securities markets had been open some of the 
days since the bombings, but trading volume was light because 
of the holidays.  The lira rallied to TL 1,448,500 per dollar 
at the close Monday, up from TL1,460,000 at Friday's close, 
as compared with TL  1,484,000 after the bombings November 
20.  There were reports that foreigners--who had pulled out 
of lira after the bombings--were now buying lira and were a 
significant factor in the rally. On Tuesday, the lira eased 
back to TL 1,459,000, but a Central Bank official told econ 
specialist that this was largely due to one USD 90 million 
foreign exchange purchase by a Turkish company. 
 
 
5. (U) With inflation numbers due out Wednesday after the 
close of business and a heavy calendar of redemptions this 
week, there was a more mixed picture in government securities 
markets.  Interest rates on government securities, which had 
increased slightly after the bombings, fell back close to 
their pre-attack levels on December 1.  On November 20, rates 
on the benchmark December 15, 2004 bond had increased from 
28.69 percent to 29.07 percent and were at 29.20 at the 
November 28 close in thin holiday-week trading.  On Monday 
the benchmark rate came down to 28.95 but rose to slightly on 
Tuesday to 28.98.  The uptick in the benchmark's interest 
rate contrasts with a rally in Turkish Eurobonds and 
successful domestic t-bill auctions on Monday and Tuesday, 
which were in line with expectations:  Interest rates on 
Tuesday's auctions were 27.79 percent on the May 5, 2004 
t-bill and 28.91 percent for the January 26, 2005 t-bill. 
 
 
 
 
DEUTSCH