Turkish shares gained for a fourth month and bonds rallied as a pledge by the nation’s new central bank governor to make inflation his top priority signalled to investors he wouldn’t succumb to government pressure.
The Borsa Istanbul 100 Index climbed 2.4% in April, bringing its increase this year to 19%. Government bonds also advanced during the month as delays in Federal Reserve rate increases supported demand for riskier assets. The yield on Turkish two-year notes declined 75 basis points, the most in emerging markets after Brazil.
Investors welcomed initial comments by the new governor, Murat Cetinkaya, that policy makers would focus on price stability, easing concern he may bow to repeated calls from President Recep Tayyip Erdogan and other government officials for deeper interest-rate cuts. While annual inflation fell to a seven-month low of 7.46% in March, it remains more than two percentage points above the central bank’s target.
“The new governor presented a cautious stance and ticked the right boxes,” said Gulsen Ayaz, a director of institutional equity sales at Deniz Yatirim Menkul Kiymetler in Istanbul. Cetinkaya’s decision to leave the inflation forecast unchanged was “a signal of extra caution, one of those things the market wanted to hear,” she said.
On Tuesday, the governor projected price growth of 7.5% by December, unchanged from January. Food prices remain volatile, he said. Markets extended gains this month after Cetinkaya, who took office on April 19, lowered the overnight lending rate by 50 basis points to 10% the following day, in line with expectations.
Inflows into Turkish assets have increased this year amid a broader rally in developing countries. Overseas investors poured $1.4bn into Turkish stocks and bonds in April through April 22, according to data from the central bank.
The lira gained 0.4% in April to 2.8054 per dollar by 1pm in Istanbul on Friday. Yields on two-year bonds declined three basis points, while the stock index fell 0.3%.
Reductions in borrowing costs helped support the nation’s banking shares during the month, with a gauge of 11 lenders climbing5.3%. Akbank TAS, the nation’s second largest lender by market capitalization, was the biggest contributor to the surge with a monthly gain of 7.4%. The cross-currency swap market is pricing another 50 basis-point cut to the overnight lending rate over the next two months.
Ayaz of Deniz Yatirim said more gains may be in store if the Fed and Bank of Japan send any “emerging market-friendly signals.”