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Turkish stocks and currency slump Turkish stocks and currency slump
(about 1 hour later)
Turkey's main stock index and its currency, the lira, have tumbled amid fears that the army will block the government's pick for president.Turkey's main stock index and its currency, the lira, have tumbled amid fears that the army will block the government's pick for president.
The main ISE National 100 index lost 8% of its value upon opening and the lira dropped as much as 4% in early trading. The main ISE National 100 index lost 8% of its value upon opening and the lira dropped as much as 4%.
Hundreds of thousands of people rallied in Istanbul over the weekend to protest against the candidacy of Abdullah Gul.Hundreds of thousands of people rallied in Istanbul over the weekend to protest against the candidacy of Abdullah Gul.
Protesters in support of secularism in Turkey are concerned that Mr Gul has remained loyal to his Islamic roots.Protesters in support of secularism in Turkey are concerned that Mr Gul has remained loyal to his Islamic roots.
Past history
Mr Gul failed to win election in a first round parliamentary vote, though he has said he will stand in the second round of voting on 2 May.Mr Gul failed to win election in a first round parliamentary vote, though he has said he will stand in the second round of voting on 2 May.
Prime Minister Tayyip Erdogan said he would address the nation on Monday following the protests and problems in the financial markets.
The situation is confused. We have 48 hours to get all this over with and then we'll see things more clearly Arzu Odabasi, Global Securities
On Friday, the army accused the government of tolerating radical Islam and vowed to defend secularism.On Friday, the army accused the government of tolerating radical Islam and vowed to defend secularism.
Higher risk
Turkey's army has toppled three governments since 1960, and analysts said there were fears that it could intervene again.Turkey's army has toppled three governments since 1960, and analysts said there were fears that it could intervene again.
The threat of army intervention in Turkey's politics has unnerved the country's financial markets, which last week had reached historic highs supported by an appetite for emerging market assets and the prospect of Turkey's accession to the European Union. As well as the three coups, in 1997 pressure from the army led to the ousting of Turkey's first Islamist prime minister Necmettin Erbakan.
We would expect a sharp downward market correction... as investors recognise that political risks have notched up significantly Timothy Ash, Bear Stearns economist "We all remember what happened 10 years ago," said Arzu Odabasi, an analyst at Global Securities.
The ISE National 100, Turkey main share index, fell 3745.18 points, or 8%, to 43,116.13. "For the moment, the situation is confused," she added. "We have 48 hours to get all this over with and then we'll see things more clearly."
The lira also headed south to 1.3882 against the US dollar after trading at 1.32 on Friday - its strongest level for nearly a year. More risk
"We would expect a sharp downward market correction... as investors recognise that political risks have notched up significantly," said Bear Stearns economist Timothy Ash. These worries have unsettled the country's stock market, which last week had reached record highs because of investor appetite for emerging market assets and the prospect of Turkey's accession to the European Union.
The staunchly secularist opposition party boycotted the first-round presidential vote because it was not consulted on Mr Gul's selection as the candidate for the Justice and Development (AK) Party. In early afternoon trading, Turkey's main ISE National 100 was 2,921.27 points, or 6.2% lower, at 43,940.04.
They have asked the country's constitutional court to invalidate the vote on the basis that not enough lawmakers were present. Investors recognise that political risks have notched up significantly Timothy Ash, Bear Stearns economist
The court is expected to deliver a verdict by Wednesday, when the second round of voting is due to take place. The lira also came under pressure, as did bonds, and the currency dropped to 1.37 against the dollar. On Friday, the lira was at its strongest level for a year against the US dollar.
Market support Monday's market problems came after the secularist opposition party, Republican People's Party (CHP), boycotted the first-round presidential vote.
Analysts expect market volatility to continue while political uncertainty prevails. The CHP claimed that it was not consulted over Mr Gul's selection as the candidate for the Justice and Development (AK) Party.
But they are generally confident that a sharp sell-off akin to that seen last May, when the markets were hit by global inflation fears, is not on the cards. They have asked the country's constitutional court to invalidate the vote on the basis that not enough lawmakers were present. The court is expected to deliver a verdict by Wednesday, when the second round of voting is due.
Turkey's economy has been recovering from financial turmoil in 2001, and a number of reforms since then have helped to sustain growth. "Investors recognise that political risks have notched up significantly," said Bear Stearns economist Timothy Ash.
The current government has also managed to keep its finances in check as part of its plans to cut national debt levels and meet the economic requirements of the International Monetary Fund and those needed to join the European Union. Steadier environment
Analysts said that while the short-term slump was due to continue for as long as there was political uncertainty, it was unlikely that there would be a sell-off similar to the one that hammered Turkish markets last May.
A year ago, Turkey's markets were hit by global inflation fears and the ISE lost 30% between May and June.
Mr Gul has an Islamist past, objectionable to Turkey's secular population
Today, however, the economic situation is more stable after governments pushed through a number of reforms to help sustain growth.
Investor confidence has also been underpinned by interest rates of 17.5%, which among the highest in the world.
Turkey's central bank has been tightening its monetary policy since last year, when interest rates were at 13.5%, in order to slow high inflation.
At the same time, the government has also managed to keep its finances in check as it looks to cut national debt levels and meet the economic requirements of the International Monetary Fund and the European Union.
Turkey's Deputy Prime Minister Abdullatif Sener said the government was following the current market reaction, adding that there was foreign and domestic confidence in the state of the economy.Turkey's Deputy Prime Minister Abdullatif Sener said the government was following the current market reaction, adding that there was foreign and domestic confidence in the state of the economy.