By Adam Samson, Turkey correspondent for FT.
Financial Times, March 2, 2024
Turkish stocks have notched up a world-leading rally this year as “tech mania” grips the country’s equities market and runaway inflation again sends local savers piling into shares.
The broad Borsa Istanbul all-share index has risen around 20 per cent in US dollar terms since the start of 2024, led by a 61 per cent jump in the technology sector, Bloomberg data shows. Turkey’s gains this year are the sharpest among the countries tracked by MSCI’s All-World indices.
The blockbuster start for Turkish equities comes as runaway inflation is rapidly eroding consumers’ savings and retail investors are looking to tap into the tech fervour that has taken hold across global markets this year.
The pressures are pushing local and foreign institutional investors back to the Turkish equities market as a sweeping economic policy overhaul that began in June continues apace.
“It’s both bad news is good news and good news is good news,” said Emre Akcakmak, portfolio consultant at East Capital, a specialist emerging markets fund manager.
Scorching consumer price growth, which was 65 per cent in January, has polished the appeal of equities as “locals try to protect their savings”, Akcakmak said.
The long-running inflation crisis triggered spikes on Turkey’s markets in the previous two years, but this year, more positive investor sentiment towards Turkish assets in particular and risky assets in general had also provided a boost, according to Akcakmak.
The “global tech mania” — led by US chipmaker Nvidia — has spilled into Turkey’s markets and has been a key driver of this year’s strong performance for the Borsa Istanbul, said Tunç Yıldırım, head of institutional equity sales at Istanbul-based investment bank ÜNLÜ & Co.
Investors have poured TL7.2bn ($233mn) into major Turkish tech-focused funds this year, compared with a net outflow of TL841mn last year, according to financial data provider Finnet Electronic Publishing.
This year’s inflows are significant in scale for Turkey’s markets and have likely been driven by local investors with relatively large savings, Yıldırım said. Many tech stocks fall into the small or mid-market capitalisation category, meaning the inflows into tech funds has had an outsized price impact on their shares.
Relatively light fundraising in equity capital markets this year has also given retail investors fewer outlets to stash their cash, Yıldırım said. Companies have raised about $320mn on the Turkish equities market in the first two months of 2024, compared with around $811mn in the final two months of 2023, Dealogic data shows.
Beyond the supply and demand dynamics, Akcakmak noted that Turkish stocks were also trading at “very attractive” valuations, with the benchmark Borsa Istanbul 100 index trading at about 4 times expected earnings over the next year, compared with 12 for the broad MSCI Emerging Markets index.
Analysts have also in recent weeks boosted their estimates for corporate earnings over the next year, meaning this year’s share prices rises have not made the index look much more expensive.
Still, Yıldırım added that the gains in the market this year have been largely driven by local retail investors, who in recent years have come to dominate the equities market, and Turkish institutional investors.
Foreign investors have pumped around $115mn into the stock market this year, central bank data shows. However, international money managers have pulled money out of the market over the past fortnight ahead of the March 31 local elections in which President Recep Tayyip Erdoğan’s ruling political party will seek to seize back control of Istanbul, the country’s largest and most important city.
Erdoğan deployed massive stimulus measures before the May 2023 presidential election, which he won. Some analysts worry about the risk of a repeat, which would counteract finance minister Mehmet Şimşek’s programme of using tight monetary and fiscal policy in an attempt to cool inflation in the latter half of 2024.
The central bank, for example, has lifted interest rates from 8.5 per cent in June to 45 per cent, marking a dramatic turnaround from previous years when Erdoğan has insisted on holding borrowing costs at super low levels.
“Appetite from [foreign] investors hasn’t dwindled, it’s just that people are waiting on the sidelines because we have [only] weeks left until the elections,” Yıldırım said, adding that “local elections not a big, big deal but still a risk event.”
Akcakmak concurred that the elections are unlikely to presage a major turning point and could clear the way for further foreign inflows. “When elections are over you’ll have one more uncertainty out of the way,” he said.