Turkish markets tank after ‘junk’ rating by Moody’s

ISTANBUL: Turkish shares tumbled 4% while bonds and the lira also weakened sharply yesterday after Moody’s cut Turkey’s sovereign rating to “junk”, triggering fears of an outflow of foreign funds.

Turkey depends on investment flows to fund its current account deficit – one of the biggest in the G20 – and service its foreign debt. Rating downgrades could force it to pay more to borrow money in international markets.

The decline in shares put the main index on course for its biggest oneday decline since the days after a July 15 attempted coup. Led by a 5.1% fall in the banking index, it was down 4% to 76,596 points at 0707 GMT.

In its decision late on Friday, rating agency Moody’s cited worries about the rule of law after the failed putsch and risks from a slowing economy. Gross domestic product growth slowed to 3.1% in the second quarter from 4.7% in the first and was seen slowing further.

The cut will trigger an outflow of funds by investors, who require at least two investment grades to buy sovereign debt.

“It will lead to repricing of (lira) denominated assets, pushing the cost of external borrowing higher while rendering the currency weaker,” Celik wrote in a note to clients.

The 10-year benchmark bond yield rose to 10.01% from 9.51% on Friday and the lira weakened to 2.99 against the dollar from 2.9550 on Friday evening before Moody’s move. – Reuters