TURKISH MARKETS RALLY ON ELECTION RESULTS

UNCLAS ANKARA 007847

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 ELECTION RESULTS


Sensitive but Unclassified. Not for internet distribution.



1. (U) On November 4, Turkish markets reacted positively to
the AK Party's landslide victory in parliamentary elections.
The lira strengthened very slightly, closing at TL 1,678,000
to the dollar; the Istanbul Stock Exchange 100 index closed
up 6.1 percent; the benchmark lira T-bills closed unchanged
at 64 percent in annual compounded terms.



2. (SBU) The local T-bill market weakened in the morning,
but by afternoon was attracting buyers (rumors say AK Bank,
already the largest holder of Turkish bonds, was buying).
Market participants expect strong demand in two Treasury
auctions to be held November 5, ahead of the November 6 TL 6
quadrillion (about $3.5 billion) redemption. Foreign
investors will likely join these auctions, per JP
Morgan/Chase Treasurer Gumisdis who expects rates to decline
to 62-63 tomorrow. Yapi Kredi Treasurer Huseyin Imece told
us some potential investors stayed out of the market today,
given the normal thin volumes, but will likely jump in
tomorrow in the large auctions.



3. (SBU) Comment: Turkish market contacts across the board
caution that the initial optimism with AK's single party
government could quickly fade. Gumisdis said the markets
will focus on who AK appoints to be "economy minister" adding
that AK old-timers, like Ali Coskun, are not confidence
enhancing. However, many of the AK young guard, like Ali
Babacan, will be fine.
PEARSON