Black Monday in the stock market: Why did it happen, what will happen?

While Black Monday was experienced in stock markets around the world and in Turkey, the reasons for the movement and possible future developments became a matter of curiosity.

Having closed last week with sharp declines due to recession concerns in the US, interest rate cut expectations brought forward and increasing retaliatory tensions in the Middle East, stock markets received their first bad news from Japan today.

The Japanese stock market, which experienced its worst day in 37 years, saw the indicator Nikkei 225 index close the day with a 12.4 percent drop, while the decline rate reached 21.2 percent in the last two trading days. The index lost 34.9 percent compared to the record level reached on July 11.

The series of declines that started in Japan hit Turkish and European stock markets after China, South Korea, Taiwan, Malaysia and India, while sharp declines were also seen in pre-session futures in the US.

Having closed last week with a 3 percent loss, the BIST 100 index on Borsa Istanbul regained some of its losses after losing 7 percent twice this morning.

Ata Portfolio General Manager Mehmet Gerz and İş Investment International Markets Director Şant Manukyan evaluated the developments for Sozcu.com.tr.

JAPAN: WHY DID IT START THERE, WHY IS IT IMPORTANT?

Gerz pointed to Japan as the main reason for the sell-off in global markets.

Reminding that the Japanese yen has been the major currency with the lowest interest rates for years and is the leading currency borrowed for 'carry trade' transactions that aim to gain returns by taking advantage of the interest rate difference between the two currencies, Gerz said that the interest rate hike by the Bank of Japan (BOJ) and the signals of further increases, and the expectations of higher interest rate cuts in the US along with recession concerns, brought about a sharp increase in the value of the yen, which forced those who borrowed in yen and invested in risky assets to take the 'cut loss' step.

Gerz said the dollar/Japanese yen exchange rate fell from 161.3 to 142.2 in a month, and that those who borrowed in yen and invested in dollars incurred a 10 percent loss, which brought about a major selling wave.

Stating that the correction period has already begun in the US, especially in big technology stocks, and that increasing recession concerns and the movement in Japan have deepened losses in the US, Gerz said he expects the correction in big technology stocks to continue.

BORSA ISTANBUL: WHAT HAPPENED, WHAT WILL HAPPEN?

Gerz stated that the effects of high interest rates and the slowdown in the economy were also seen in Borsa Istanbul, and that the declines had accelerated in recent days with the addition of global factors to the correction process that had been entered, and that they expected a movement above 13 thousand points in the BIST 100 index in Borsa Istanbul towards the end of the year, in parallel with the decrease in inflation and credit rating increases.

Gerz shared his prediction that in the current environment, companies with pricing power, especially those in the telecom and food retail sectors, could come to the forefront on Borsa Istanbul.

Stating that they added companies with pricing power in cement, health and other sectors to their stock portfolios, Gerz emphasized that the main criterion they take as having the power to increase product and service prices while inflation falls, and that these companies will better maintain their profitability.

WILL THE FED HOLD AN EXTRAORDINARY MEETING AND LOWER INTEREST RATES?

İş Yatırım International Markets Director Şant Manukyan, in his article published on Sozcu.com.tr the previous day, pointed to Japan as the starting point of the decline in stock markets and emphasized that news that the BOJ could increase interest rates further caused a sharp decline in the indexes.

Manukyan stated that recession concerns were added to this, non-farm employment data also increased recession fears, and that markets saw this as a search for a theme, and that when news that Iran could retaliate against Israel was added in the next 72 hours, investors' desire to enter the weekend with a position in the stock market decreased, and these developments were effective in the decline.

In his comments today, Manukyan said that he did not expect an extraordinary interest rate cut from the Fed.

ENERGY IN RETALIATION, BANKRUPTCIES IN RECESSION CRITICAL

Regarding the Middle East tension, Manukyan stated that Israel had threatened Iran that “if there is retaliation, we will destroy its energy infrastructure” and that there could be a serious increase in oil prices in the event of such a development, but there were reports that the retaliation date had been moved to mid-August.

Manukyan pointed out that the recession theme may continue in the US, but the critical point will be whether a bankruptcy that could put the global financial system at risk will occur in any country, and noted that there would be no problem if such a bankruptcy were not encountered, and that the correction in the stock markets was healthy for further upward movements, and that in the current situation, it did not make sense to expect the Fed to cut interest rates just because the stock market fell.