Turkey’s lira hits record low

ISTANBUL - Turkey's stock index rose nearly 10% on Wednesday after five days of earthquake-related closure and last week's steep losses, as government measures to prop up equities looked to be working, but sentiment was fragile with the lira hitting a record low.

Borsa Istanbul halted trading on its equity and derivatives markets two days after the February 6 earthquakes that claimed more than 41,000 lives in Turkey and neighbouring Syria.

Authorities issued a series of regulations on Tuesday to shore up equity markets in the run up to the reopening after steep drops in share prices in the two days following the quake saw market capitalization of Turkish stocks drop by $3.9 billion on the country's MSCI index, according to Refinitiv data.

"Turkish stocks have benefitted from the intervention in the market we have seen from the government there, all designed to prevent a crash following the closure," said analyst Stuart Cole, head macro economist at Equiti Capital.

However, questions remained over the strength of underlying sentiment and what investors would do without official support, Cole said. "I would also question how long the authorities can continue with this support given the fragile nature of official finances," he added.

Turkey's lira hit a fresh record low of 18.9010 to the dollar before retracing some of its losses to trade down 0.2%. The currency has weakened around 1% since the start of the year.

Rapid new regulations

Turks beset for years by soaring inflation and currency crashes have piled into the country's stocks in recent months, lifting the main index by 200% last year. Local investors now account for 70% of stock holdings, up from 35% in 2020.

Turkey's main index is down 10% year-to-date compared to a 5% gain in wider emerging market stocks.

Turkish authorities pushed through new regulations including measures incentivizing company share buyback programs, and increasing obligatory pension fund allocation for stocks.

The withholding tax on share buyback programs was cut to zero from an earlier 15%, while the general assembly decision mandate for share buybacks was also waived, allowing listed firms to start programmes with just a management board decision.

Several listed companies, including flag carrier Turkish Airlines and lenders Isbank, Halkbank and Vakifbank have announced some 16 billion lira ($849 million) worth of share buyback programs since Tuesday, according to a Reuters tally.

Authorities also increase the mandatory allocation of shares in the government-sponsored part of the pension scheme to 30% from 10% which, according to analyst calculations, will pull 8-9 billion lira into the stock exchange.

Borsa Istanbul said on Tuesday that order cancellation, price worsening and quantity reduction would not be allowed during opening.

It cancelled trades that took place on Feb. 8 in response to investor outcry about widespread losses. The cancellations followed multiple market-wide circuit brakers in the two trading days following the earthquake, which failed to halt the slide.

"I expect the stock market to be more stable... The change to the minimum equity ratio of leveraged positions will prevent sales that brokerages can make ex officio" said Serdar Pazi, research director at Trive Yatirim.

Stocks would maintain a positive outlook in the medium-long term as the gap between inflation and alternative capital market instruments continued, Pazi added.

Local government bonds broadly held steady with the 10-year yield nudging a touch lower to 11.17%. The central bank said on Wednesday it will purchase up to 8 billion lira ($159 million) worth of government bonds and sukuk in a move aimed at balancing government bond sales by pension funds now raising equity allocations.