Turkish stocks take a nose-dive
The Istanbul Stock Exchange (IMKB), took a 5.27 percent dive to 10,862 points after foreign and professional speculators began selling stocks.
The IMKB national 100 index, which passed 20,000 points in January, continued its plunge Monday, going as low as the 10,000s.
In December 1999 and January 2000, the IMKB had a healthy period. Turkey candidacy for the European Union was approved and the government signed an economic stabilization program sponsored by the International Monetary Fund (IMF).
The IMF stabilization program set 20-25 percent inflation rate for the year 2000. Interest rates would be reduced, and exchange rates would move in a pre-determined band. For investors this meant the end of the era of high returns on foreign exchange, interest rates, and government bonds.
The stock exchange provided a means for high returns, but the government and the media exaggerated expectations for the stock exchange, and small investors rushed to the IMKB.
Stocks started to rise in September 1999 and hit new records for the following three months, rising above 20,000 points. Investors bought stocks in spite of the high prices. Foreign investors and speculators took advantage of the buying frenzy and started selling stocks, as small investors, unaware of the consequences, kept buying.
In March, the index fell and kept on falling. The IMKB index fell from 20,000 in January 18 to 11,000 on Sept. 18. Foreign investors and speculators left the stock market quickly and the small investors were left behind to pay the price.
Economists Bulent Uygun said the stock market would continue to plunge. Uygun said he expects the index to go down a further 1,000-2,000 points.
"We should look at two important indicators to understand rises and falls on the stock exchange. One of them is the dollar equivalent of the index," Uygun said.
The IMKB went up to a 2.1 US cent level at its peak in 1990. This record was only broken 10 years later in 2000. The index exceeded 20,000 and its dollar equivalent passed 3.7 cents on Jan. 18, 2000, Uygun said.
The other indicator is the rate of price gains. Until 2000, the rate was between 8 and 18. Uygun said when the rate went below eight, investors began buying and when it exceeded 18, they sold.
"The index can go down by 1,000-2,000 points in coming days, but if indicators turn out to be positive, it can soar again," Uygun said.
Uygun said foreign investors have played a big role in the stock market's sharp fall. He said in January 65 percent of the stocks were held by foreigners. Today, 40 percent of the stocks are owned by foreigners, the sales took out $2.6 billion from the IMKB.
"Investors bough the prefect stocks and now there is nothing left to buy," said Brokers Hakki Oger, a broker at Site Yatirim. Like Oygun, Oger anticipated the stock market plunge to continue. – (Albawaba-MEBG)
© 2000 Mena Report (www.menareport.com)