11:13 am June 6, 2013
If they were hoping for a reassuring message, it was nothing of the sort.
Investors watching comments by Turkey’s Prime Minister Recep Tayyip Erdogan hours before he returns to a nation beset by the largest protests for decades, took fright on Thursday as he maintained his tough stance that protests were being fueled by extremist groups and that the state would not negotiate.
In televised comments through a translation at a press conference in the Tunisian capital Tunis, Mr. Erdogan said illegal protests would not be allowed and that he would push ahead with a controversial reconstruction project in an area of Istanbul which has now been occupied by protesters who have demanded the project be abandoned.
“Illegal protests won’t be allowed… the state can’t be run through bargaining,” the Prime Minister said through a translation. “The magnificent Ottoman barracks will be built that will bring the whole city together,” he said in reference to a project which would raze a city park.
As he spoke, Turkish assets nosedived: stocks fell 8% to their lowest level since November, pushing Turkey into a bear market after a 22% drop in prices since May 22. Bonds also faced serious pressure, as the yield on the two-year benchmark government bonds rose 62 basis points. The lira fell 0.6% against the dollar to its lowest level since December.
“Obviously very disappointing from Erdogan, I am afraid elements of the administration are appearing a little bit out of touch at the moment. We continue to advise investors to reduce positions. Perhaps the market reaction will encourage a more moderate and reasonable response, that has been the experience in the past,” said Tim Ash, an economist at Standard Bank in London.
The falls followed a 10% drop in stock prices on Monday after nationwide demonstrations against Mr. Erdogan’s government erupted at the weekend. Markets pared some losses on Tuesday, climbing 5%, but were flat on Wednesday as investors waited for signals from the Turkish premier.
The combative signal on Thursday appeared to contrast sharply with the comments of some senior officials of Mr. Erdogan’s Justice and Development Party. Since Monday, the premier’s lieutenants have been seeking to strike a more conciliatory tone to defuse a building political crisis which represents the biggest anti-government protests in a decade. Demonstrations have continued unabated against Mr. Erdogan, who has said the protesters are “marginalized groups” who walk arm-in-arm with terrorism.
Tumbling asset prices come as the latest sign that a standoff between thousands of protesters and Prime Minister Recep Tayyip Erdogan is exerting a tough toll on Turkey’s economy.
The persistent demonstration is damaging the nation’s image of political stability, which Ankara needs to attract investment and customers to fulfill its aim of becoming one of the world’s top 10 economies in the next decade.
Hotels have already been hit hard with cancellations, as the peak tourism season gets under way. Turkey is a big tourist destination, and the sector is especially exposed to concern over public disorder.
Analysts said markets were shocked at the Prime Minister’s combative tone. “His defiance and possible resumption of heavy-handed police response could undermine lira-denominated assets, particularly if the adverse sentiment against emerging markets continues,” said Inan Demir, chief economist at Finansbank in Istanbul.
Turkey Enters Bear Market as Erdogan Digs In - MoneyBeat - WSJ