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Expert suggests caution over investment in Turkey after coup attempt

Xinhua, July 24, 2016 Adjust font size:

A Dubai-based investment expert said on Sunday that his bank recommends investors to exercise extreme caution as "worrying times" in Turkey would not end soon following the failed military coup against President Recep Tayyip Erdogan.

In his weekly economic commentary, Gary Dugan, the Chief Investment Officer of Wealth Management at Dubai's first bank Emirates NBAD, said the decision by the Turkish government to invoke a state of emergency and subsequent announcements suggests that the situation is going to be "very volatile for some time to come."

Since the failed coup, he said, the Turkish equity market has fallen through key supports to 71,738, with the next support at 68,500.

While the valuation of the market has reached a "cheap" level, "investors are likely to stand back to see how deep the current purge inside the country goes," said Dugan.

The Emirates NBD banker said the state of emergency will remain in place for at least three months, allowing the government to initiate any policies without reference to parliament.

"As an indicator of how much the Turkish leadership are taking control, the government has taken the unprecedented step of banning all academics from leaving the country, ordering the closure of more than 1,000 private schools, 1,229 charities and foundations, 19 trade unions, 15 universities and 35 hospitals," he said.

Therefore, the Turkish lira remains under pressure trading at 3.08 against the dollar, pushing through the 3.0 level to 3.06.

Meanwhile, the Turkish 10-year government bond yield has pushed higher to 9.88 percent, having at one point traded through 10 percent.

A higher yield on government bonds indicates that investing in the underlying country becomes more risky and vice versa.

"The risk is that the yield will push on to 11.0 percent," said Dugan, a level reached in January.

The bond market is particularly vulnerable as Moody's rating has put the country on review for possible downgrade, which means Turkey would lose its investment grade status, he said. Endit