Economic woes force investors to dump Turkish stocks

Reuters/Murad Sezer

• BIST100 index down 8% on month
• Foreign investors lead the retreat
• Small local investors also sell up

The Borsa Istanbul was the worst performing stock exchange globally in August, with investors large and small heading for the exit as Turkey’s economy slows and returns wither. 

After hitting an all-time high of 11,173 points on July 22, the exchange’s key BIST100 index has dropped steadily. It fell 13 percent to 9,724 at one point on August 29, the last day of trading for the month. 

The most recent drop took losses in August to 9 percent at one point, though a modest rally still meant the index closed more than 8 percent down. 

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Foreign investors led the retreat, moving out of Turkish stocks in recent months. 

Blue-chip companies dumped by overseas investors include the oil refiner Tüpraş, Turkey’s largest industrial enterprise, the leading telco Turkcell and the national flag carrier, Turkish Airlines.

Estimates put foreign investors’ stock sell-off over the summer months at nearly $3 billion. 

There has also been a marked move out of the market by small local investors as returns dwindle and prospects for future earnings in a slowing economy fade.

Almost one million small investors sold up in the three months to August, according to exchange data issued early in the month.

• Turkey holds interest rate at 50% despite inflation risks
• Turkish trade gap narrows as imports drop

• Turkey transfers shares in 12 companies to its wealth fund

Financial markets analyst Iris Cibre said a combination of factors contributed to the bleak August results. 

“There was the slowing of the economy due to monetary tightening, bad performing company balance sheets, and a lack of foreign investor demand,” she told AGBI. 

Signs of a slowdown in the economy started to appear in the second quarter, Cibre said. “There is falling demand, and this naturally reflects on companies trading on the stock exchange.”

This cooling of the economy, largely stemming from government efforts to rein in inflation through a mix of high interest rates and restrictions on credit access, has made market investors wary, with expectations of lower corporate earnings in Q3. 

Fall in IPOs

Another factor in the waning investor activity is a fall in the number of new products on offer. Just four new initial public offerings (IPOs) took place over the June to early August period, down from eight such listings in May.

This, and the weak performance of recent IPOs, is contributing to a falling off of interest by new small domestic investors, Cibre said. 

While the BIST100 had a poor month in August, it still closed out the month more than 30 percent up for the year to date.

How much of these advances Borsa Istanbul will be able to hold on to will depend on how resilient the Turkish economy remains in the coming months, observers said.