Turkey's stock index soared almost 10 percent on Wednesday after five days of earthquake-related closure and last week's steep losses, as government measures to prop equities looked to be working, but analysts warned sentiment was fragile and the lira hit a new record low.
Borsa Istanbul halted trading on its equity and derivatives markets two days after the earthquakes that claimed more than 40,000 lives in Turkey and neighboring Syria.
Turkish authorities issued a series of regulations on Tuesday to support equities markets ahead of Wednesday's reopening, looking to encourage a cash injection after the Turkey MSCI index's market capitalization fell some $3.9 billion in just two days of trading after the quake, 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 of the exchange a week ago," said analyst Stuart Cole, head macro economist at Equiti Capital.
"So far the policy appears to have worked, judging by the performance at the open … however, you do have to question how strong underlying sentiment is and what investors would be doing if this official support were not there … I would also question how long the authorities can continue with this support given the fragile nature of official finances," he added.
Meanwhile Turkey's lira hit a fresh record low of 18.8535 to the dollar before retracing most of its losses to trade down 0.1 percent.
The currency has weakened around 1 percent since the start of the year.
Rapid new regulations
Turkish authorities pushed through new regulations including measures incentivizing company share buyback programs, and increasing obligatory pension fund allocation for stocks.
On Tuesday, the withholding tax on share buyback programs was cut to zero from an earlier 15 percent to encourage companies to buy back shares and in turn stabilize their market value in the stock exchange.
The general assembly decision mandate for share buybacks was also waived, allowing listed companies to start share buyback programs with just a management board decision.
Several listed companies, including the flag carrier Turkish Airlines (THYAO.IS) and lenders Isbank (ISCTR.IS), Halkbank (HALKB.IS) and Vakifbank (VAKBN.IS) have announced some 16 billion lira worth of share buyback programs since Tuesday, according to a Reuters tally.
Under another new rule, authorities increased the mandatory allocation of shares in the government-sponsored part of the pension scheme to 30 percent from an earlier 10 percent which will allow some 8-9 billion lira to flow to the stock exchange, according to analysts.
Borsa Istanbul said on Tuesday that order cancellation, price worsening and quantity reduction will not be allowed during opening.
Additional measures could still be needed to stabilize the stock exchange, according to Tunc Satiroglu, strategist and founder of financial consulting firm Kanal Finans.
Borsa Istanbul canceled trades that took place last Wednesday in response to investor outcry about widespread losses. The cancelations followed multiple market-wide circuit breakers in the two trading days following the earthquake, which failed to halt the slide to no avail.
"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 at Tuesday's closing level of 11.21 percent.
The Turkish 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.