Turkey Pulse

What next for Turkey’s stock market?

Article Summary
Having recovered in the wake of political turmoil, Turkey’s stock market appears on a downward trend in the short run.

Turkey’s stock exchange, Borsa Istanbul (BIST), has been on the rise in recent weeks following a period of turbulence. The main share index, BIST 100, which dipped to 60,753 points on Jan. 29, has since gained 25%, reaching the 76,000-point threshold. According to figures obtained from Is Investment, the index stood at 61,141 points on Feb. 27, so investors who put money in the Turkish stock exchange at the end of February have seen their shares gain by nearly 25% in a period as short as two months and 10 days.

The index had rallied to an all-time high of 93,178 points on May 22, 2013. The ensuing regression resulted in a loss of 32,425 points over nine months, bringing the index down to 60,753 points. Boosted by expectations of political stability in the wake of the March 30 local elections, coupled with favorable developments abroad, the stock market regained ground and the index challenged the 76,000-points bar during May 8-9. Will the rally continue?

Brokers have switched to using cautious language in the past few days. The breathless rally could give way at any time to profit-taking. In fact, recent trading has already seen some small-scale sell-offs. The major slumps typical for May appear to have not yet started. Some expect the index first to retreat and then embark on a fresh rally, pushing the 80,000-point threshold.

A year of crisis

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A brief overview of the past year helps to clarify the picture. After the US Federal Reserve signaled an end to monetary expansion in May, the Turkish stock exchange index began to fall. The selling accelerated when the Gezi Park protests erupted on May 27. Experts were caught off guard by the scale of the ensuing turmoil, which plunged the index to as low as 60,000 points. Ozgur Turttasseven, from Garanti Investment, for instance, had made the following prediction at the time: “We cannot give definite figures, but we expect a support level of 78,000-79,000 points and a resistance level of 83,000-84,000 points. The index will rebound to its previous level when the situation calms down.”

The stock market’s reaction to the first day of the Gezi protests came in the form of a 6.73% slump, which brought the index down to 80,253 points, the largest daily loss in 22 months. Prime Minister Recep Tayyip Erdogan played down the downturn: “The stock exchange always goes up and down. It may lose a few thousand points now and abruptly hit 100,000 tomorrow. Turkey is a safe harbor.”

Following the Gezi turmoil, the stock market was shaken anew in December when the corruption scandal, marked by leaked wiretaps of Erdogan and senior government officials, rattled Turkey ahead of the local elections scheduled for March. On Dec. 17, 2013, police had detained a number of high-profile figures in a massive probe into graft and bribery that the Erdogan government described as a “coup attempt.” The BIST index lost 3,897 points, or 5.21%, slumping to 70,946 points in a single day. Further losses of 11.7% during the next 11 days brought the index down to 66,000 points. A slight improvement in the last days of the year led the index to close 2013 at 67,801 points before dipping to 60,000 in late January as political tensions simmered.

With 10 days to go before elections, the stock market appeared to be back on an upward trajectory as an expectation of post-election stability spread rapidly among investors. The Turkish markets benefited also from expectations of monetary expansion in Europe and no immediate prospect of interest rate hikes in the United States. As a result, the BIST 100 index surpassed 76,000 points in afternoon trading on May 9 before closing the day at 75,562 points.

Positive statements from the United States and Europe as well as declining tensions between Russia and Ukraine inspired a rally at the Turkish stock market the first week in May. Federal Reserve Chairwoman Janet Yellen said no timetable had been set for an interest rate hike, and European Central Bank Governor Mario Draghi signaled a monetary expansion in June. While the statements boosted shares, the Turkish lira quickly rose against the dollar, falling below the 2.08-liras-per-dollar rate, which is considered “critical.”

What next?

A popular saying among investors about the Turkish stock market is, “Expectations are being bought and then sold off before being realized.” That expectations in Europe and the United States are beginning to be realized is seen as the flare signaling looming profit-taking sales in Turkey. To further rally, the Turkish stock market needs a new story, that is, new expectations. The market appears stuck at present, with attempts to move upward falling backward.

In May 7 comments on Turkey’s Bloomberg HT television, financial analyst Selcuk Gonencler made an intriguing forecast: “The current level, I think, is too frivolous and will definitely retreat. If the 75,500-point resistance is overcome, the index can technically continue rising up to 77,400 points and may even reach 80,000 points. But the 77,500-point level should be seen first. If the lira-dollar rate falls below 2.08, the stock market will keep rising. If the lira-dollar rate moves up to 2.14, the index will gradually decrease to 73,000 or even 71,000 points. And if the index falls below 71,200 points we advise investors to opt for stop-loss in the short run.”

Foreign investment share

When the BIST 100 index slid below 62,000 points in late January, the share of foreign investment in the Turkish stock market shrank to 61.35%, its lowest level in the last five years. Foreign investments had reached 73% in the first half of January 2013 before the Fed signaled an end to monetary expansion, triggering capital outflow from Turkey. The outflow accelerated under the pressure of domestic events and the elections. The share of foreign investment fell to 62.08% in February, below its level during the 2008 financial crisis.

Foreign investors, however, began to return after the March elections. According to Is Investment figures, foreign investment amounted to 63.81% on May 8. This means foreign investors hold $48 billion in shares on the Istanbul stock exchange, where the total stock value is $76 billion. Foreigners appear to have focused on buying banking sector shares in March, April and May. In short, confidence in the Turkish stock market is back, but to consolidate the quick rally and move higher, downward movement should be expected in the short run.

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Found in: turkey, monetary policy, investment, gezi park, economy

Mehmet Cetingulec is a Turkish journalist with 34 years professional experience, including 23 years with the Sabah media group during which he held posts as a correspondent covering the prime minister’s and presidential offices, economy news chief and parliamentary bureau chief. For nine years, he headed the Ankara bureau of the daily Takvim, where he also wrote a regular column. He has published two books.

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