1. 1 WEEKLY MARKET UPDATE July 04th – July 11th, 2014

2. MSCI Indices 2 MSCI Turkey was one of the best-performing indices last week as it positively diverged from MSCI EM and rose 3.1% week-on-week (WoW). This advance came at a time of increased worry regarding some problematic EU banks which reminded the markets of 2011 European debt crisis. As a result, developed market indices experienced a selloff last week causing MSCI World to decline 1.6% WoW. Despite stong weekly gains, MSCI Turkey is still at par on month-to-date (mtd) basis when compared to MSCI EM. Due to the tension in Iraq adversely affecting market sentiment, MSCI Turkey only rose 1.0% mtd, barely above 0.8% rise in MSCI EM. MSCI Turkey logged 5th-best performance among EMs year-to-date (ytd), advancing 19.9% compared to 5.6% rise in MSCI EM & 4.5% rise in MSCI World ytd.

3. BIST-100 3 BIST-100 index advanced 2.4% last week despite global profit-taking and closed just below 80k level. Banking/Industrials ratio retreated to 1.99x. As of Jul. 11th, 2014, BIST foreign ownership ratio rose 18bps WoW to 63.66%. BIST-100 P/E ratio (current) rose as well from 13.46 to 13.74 and still hovers around ‘’overbought’’ zone.

4. Benchmark Rates 4 2-year government bond yield fell 9bps on weekly basis (WoW ) to 8.12% as the markets are pricing in CBT’s expected rate cut this week. Turkey’s yield curve steepened last week as 2-year benchmark rate fell 9bps WoW while 10-year rate rose 7bps WoW. Spread between long and short end of the yield curve expanded to 79bps, above 2-year median of 63bps and widest reading since end of Oct’13.

5. Turkish Lira vs. peers 5 Turkish Lira had a gainsome week against US$. US$/TL rate started the week at 2.133 and headed lower to 2.117 by the week’s end (+0.74%). TL appreciated vs. currency basket (half US$ + half €); started the week at 2.512 and ended the week around 2.500 (+0.46%). Despite significant improvement thanks to CBT’s aggressive rate hike in Jan’14, TL still is more volatile than its peers. TL gained 1.5% against US$ year-to-date, merely better than selected EM avg. gain against US$ (+0.8%). Weekly Review:

6. 6 Precious Metals Gold resumed its slow and steady rise last week as the metal rose 1.3% WoW to US$1,338/ounce (16-week-high). The metal advanced 11.0% year-to-date and is trading above its 200-day moving avg. TL/gr price of gold is on the rise again and has reached highest point since late Mar’14. The price of 1 gr of metal rose 0.6% WoW to TL91.12. After last week’s gain, year-to-date gain reached 9.4%. After reaching US$115 level due to potential supply shortage in Iraq, Brent prices continue to fall. It has retreated 3.6% last week to test US$106.6/barrel (lowest since early Apr’14). The price drop is due to (i) fading worry over Iraqi oil production (ii) Libyan oil production back online and being available to int’l markets again.

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