Cablegate: Turkish Markets Rally On Eu, Cyprus News

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS ANKARA 008369

SIPDIS

SENSITIVE

STATE FOR EUR/SE, EB/IFD/OMA AND E
TREASURY FOR OASIA - MILLS AND GUNARATNE
STATE PASS USTR - NOVELLI AND BIRDSEY

E.O. 12958: N/A
TAGS: ECON EFIN PREL TU
SUBJECT: TURKISH MARKETS RALLY ON EU, CYPRUS NEWS

Sensitive but Unclassified. Not for internet distribution.

Honeymoon Continues; Economic Data Also Strong
--------------------------------------------- -

1. (U) The two-week market rallies continued strongly on the
morning of November 18:

-- Treasury bill yields dropped 1.5 percentage points. With
the benchmark July 2 bill now at 49.5 percent, in compounded
terms, rates have dropped over 14 percentage points since the
November 3 elections.
-- The stock market, up 4.5 percent in morning trading, has
risen about 40 percent since the elections.

-- The lira appreciated about 1.5 percent since Friday, and
is now trading at TL 1,580,000 to the dollar. This
represents appreciation from one year ago even in nominal
terms (not counting the approximately 35 percent inflation of
the past 12 months.)

2. (U) Year-end growth data continues to support an optimist
outlook. The Turkish Treasury officially revised its
year-end 2002 projection upwards, from 3 to 4 percent GNP
growth. Central Bank economist Ilker Domac says 4 percent
remains a conservative figure; the Central Bank's internal
projections have year-end growth at 4.4 percent. Treasury
U/S Oztrak told us privately Treasury now projects 5 percent
growth. Comment: The 2002 growth data has to be seen in
light of last year's decline of 9.7 percent: this is a
partial recovery. The tricky part now involves forecasting
2003 growth, and to do that we'll need to see the assumptions
in the new government's budget. End Comment.

Markets React to Gul, Cyprus and EU News,
Less About the Economy
-----------------------------------------

3. (SBU) Market analysts and participants tell us the
markets are being driven by the AK party's "sensible
positions on Cyprus, the EU and on relations with President
Sezer," according to Bender Securities strategist Murat
Gulkan. The selection of Abdullah Gul as PM was also
welcome, since Gul is AK's best known figures to the
financial markets. JP Morgan/Chase treasurer had a
cautionary note, telling us, "it's about Cyprus and the EU,
which means there's room for correction." Disbank Treasurer
Bayazit concurred, adding that some Turkish banks are playing
the risky, but traditional game of borrowing dollars and
Euros to invest in lira instruments (especially T-bills.)

4. (SBU) There have been some foreign inflows to the local
capital markets, though most of the buying continues to be
local, per brokers. One broker told us that the Istanbul
Stock Exchange's largest U.S. investor - Capital Assets
Management - has been selling most of its holdings into this
rally.

5. (SBU) Market participants also note that the new
government's economic policies are still not clear, The
"One-Year Action Plan" released by AK Chairman Erdogan
November 16 had a mixed reception (see septel). For now, the
markets are largely ignoring it, and focusing on the positive
approach of the new Government to political issues.
PEARSON

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