(Bloomberg) -- Aggressive rate increases are creating turbulence for Turkey’s high-flying stocks, as payouts of more than 40% on bank assets lure investors away.

One of the world’s top performers in local currency terms this year, up 70% since elections in May, the Borsa Istanbul 100 Index suddenly faces headwinds. Since its all-time high of Sept. 7, the gauge has fallen 5.6% in local-currency terms. Technical indicators suggest the downtrend could persist in the near-term. 

The central bank has stepped up the pace of rate hikes up after newly-installed finance minister Mehmet Simsek made quelling inflation a priority.

The monetary policy committee is expected to raise its one-week repo rate to 30% from 25% when it meets on Thursday, according to the median estimate of economists surveyed by Bloomberg. 

Policy makers have already raised their key borrowing rate 1,650 basis points, and pushed the rate on three-month lira deposits to 41%, a level that’s getting too enticing for many to turn down. The winding down of a key emergency lira savings program is also heightening competition among Turkish banks to attract lira deposits.

“Gains attained so far with no significant correction in the BIST 100 might leave investors somewhat cautious, resulting in interim corrections,” said Burak Isyar, head of research at ICBC Turkey Investment. That’s offset by inflation-adjusted yields that dwarf most emerging-market peers, keeping Turkish assets attractive to foreign buyers, he said.

Here are a few of the signals that point to the potential for a steeper drop from here.

Convergence-Divergence

The BIST 100 Index’s Moving Average Convergence-Divergence line — known as the MACD and used to indicate changes in a security’s direction or trend — fell below the red signal in September, signaling Turkish stocks may have switched to a declining trend. Nevertheless, the above-zero level suggests the pullback could be short-lived.

Bollinger Band

The gap between the upper and lower Bollinger of Turkey’s BIST 100 Index has narrowed this month, hovering near the lowest level since April. The price is trading near the lower one. Combined with lower volatility, it suggests a new trend may emerge soon. 

Meanwhile the so-called Percent B signal shows where the prices are relative to their historical moves, adjusted for volatility. It fell to the lowest level since May this week. When it stays low on successive days, some traders see it as a bearish trend. 

Directional Movement Index

The Turkish stocks’ main index has recently embarked on a downward trend, according to a gauge that compares successive days’ highs and lows to measure momentum. With the BIST 100 Index having its worst weekly performance in three months last week, the so-called directional movement index sent a bearish signal as the negative DMI line crossed above the positive one. 

 

Relative Strength Index

The index is still very far from oversold territory, while technical supports, such as Fibonacci retracements levels, are not yet in sight. In the past, the Turkish index has comfortably bounced only after getting close to oversold levels, suggesting there may be more room for losses. 

--With assistance from Michael Msika.

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