Turkish assets extend losses as fears on AIG hit global markets

The Turkish stock market fell sharply on Monday closing 5.27 percent down, falling to its lowest level since early July, erasing a $13.7 billion in market value.         Â

The global equities tumbled for a second day on Tuesday as anxious investors waited to see if the United States insurance giant AIG would suffer the same fate as bankrupt U.S. investment bank Lehman Brothers. AIG lost more than 60 percent of its market value Monday as the giant insurer rushed to raise capital and stave off ratings downgrades that could threaten its survival.  Â

Analysts say the fall in Turkish asset prices are completely due to increased risk aversion which hit global markets as well.

 

"The main problem emerges from the banking sector in the U.S. We experience the secondary effects of this. The (foreign) currencies rise a bit but the largest impact of this crisis would be high rates," Yatirim Finansman Research Director Deniz Can Yucel said.

 

He added there is no expectation of a large investment outflow from Turkish markets.

 

TURKISH BANKS BUY BONDS 

Several Turkish banks have increased their purchase of Turkish government bonds over the past two days to prevent bond yields from rising further amid worsening global market conditions, traders told Reuters on Tuesday.

 

The total amount of bonds purchased since Thursday last week reached as high as 2 billion lira ($1.56 billion), four Istanbul-based traders, who declined to be named, said.

 

The yield on the April 14, 2010 dated benchmark bond rose to 19.37 percent on Tuesday from 19.26 percent on Monday.

 

"Even though we expect the yields to rise somewhat more, we believe that the current levels are suitable for taking new portfolio positions and for that reason our bank is buying bonds," one trader told Reuters.

 

"Bond yields would rise further, if we did not buy bonds," said the same trader.

 

Foreign banks sold Turkish bonds amid global risk aversion, sending the benchmark bond yield 60 basis points higher since Friday's closing, against the backdrop of a U.S. financial sector crisis including the collapse of investment bank Lehman Brothers.

 

IS AIG NEXT?
AIG scrambled for a financial lifeline on Monday after investment bank Lehman Brothers failed to find a rescuer and Merrill Lynch agreed to be taken over by Bank of America.

A concern hanging over the market is the fate of other financial companies, most notably AIG, one of the world’s largest insurers, after the Fed rebuffed a request by the company for a $40 billion temporary loan.

The Fed has hired investment bank Morgan Stanley to review options for AIG -- which has lost some 92 percent of its value so far this year -- a person familiar with the situation told Reuters Monday.

AIG's precipitous stock decline has led ratings agencies to threaten downgrades that could force it to post more collateral and nullify insurance contracts, possibly setting in motion a chain reaction that could threaten its survival.

"AIG seems to be the next guy on the chopping block," Reuters quoted Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey, as saying.

"You don't just have a potential impact on the reinsurer side, you have it on the institutions that might be holding AIG paper," Lorraine Tan, director of research for Asia at debt rating agency Standard & Poor's in Singapore also told Reuters.

 

"This would have a much bigger impact than a bank going down like Lehman or Bear (Stearns) or even a Wachovia or WaMu in the U.S. AIG has a much bigger presence globally. Their reach to a global customer base is quite sizable," she added.

The New York Federal Reserve Bank was engaged in talks with JPMorgan Chase and Goldman Sachs on a $75 billion loan for the insurer, for seeking a private solution to Wall Street woes, the New York Times also reported.