Turkish shares tumble 4 percent while bonds and the lira also weaken sharply after ratings agency Moody's cut Turkey's sovereign rating to ''junk'', triggering fears of an outflow of foreign funds. Ivor Bennett reports.
It doesn't look like an economy in crisis. And if the Turkish government's to be believed, it's not. First accusing Moody's of not being impartial in its decision to downgrade its sovereign debt to junk. Now insisting its fears of capital flight are misplaced. (SOUNDBITE) (Turkish) TURKISH DEPUTY PRIME MINISTER, NUMAN KURTULUMUS, SAYING: "I don't see a big withdrawal which harms the Turkish economy. The numbers so far are so below, they talk about a probability but I don't see it." Plenty of others do though. Shares tumbling 4 percent; lira weakening further. Moody's cited concerns over the rule of law and a slowing economy as reasons for the downgrade. 10 year yields surging above 10 percent on the news. SOUNDBITE (English) SIMON FRENCH, CHIEF ECONOMIST, PANMURE GORDON, SAYING: "I don't think it's a game changer in any sense. You could very well see those yields move lower, materially lower, not because of the Moody's announcement but because of signs of greater stability, politically in Turkey." It's not hard to see why Turkey's angry. It has one of the biggest current account deficits in the G20, and relies on foreign investment to fund it. But while some may see risk, others see opportunity - second quarter growth was 3.1 percent. SOUNDBITE (English) SIMON FRENCH, CHIEF ECONOMIST, PANMURE GORDON, SAYING: "Investors around the world are looking for yield. And at some point that risk/reward trade-off is going to move favourably in the direction of Turkey, given the demographics, given the potential, given the crucial geographic position it occupies." But that position between Europe and Asia is not just a frontline for investment, also instability.