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Turkey’s bright futures shrug off turbulence

The local speculators who dominate trading in Turkey’s burgeoning equity derivatives market have had a roller-coaster ride over the past year. But the market’s popularity has continued to grow and it looks set to become even busier. Dominic O’Neill reports.

MOST OF TURKEY’S biggest stocks are banks, so the pleasant surprises in Turkish banks’ earnings this year have fuelled a rapid recovery in fortunes on the Istanbul Stock Exchange. If profits soon take a dip, there might be a more rapid exit from the market as foreigners lose their appetite for emerging markets.

One of the most important sites of gain and loss will be, and has been, the burgeoning equity derivatives market.

Until 2005 trading in equity derivatives in Turkey was almost non-existent, but just over four years ago new contracts were introduced. Since relatively tight rules remain in place in the spot market, whereas 10-times leverage and shorting is permitted in futures, liquidity in the derivatives market has steadily grown. Trading is now almost as big as in the spot market.

An emerging market in an emerging market

Trading volume and open positions in the ISE 30 futures market, Feb 2005 to Jul 2009

Source: Ata Invest

Around three-quarters of derivatives trading in Turkey is accounted for by one futures contract, which is based on an index of 30 of the ISE’s most-traded stocks.

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