Turkey’s stock exchange Borsa Istanbul has attracted a total of $974mn worth of portfolio inflows in a three-week period between June 2 to June 23, weekly data from the central bank showed on July 5.

It was probably “tactical” investors who were now betting on Turkish stocks, rather than longer-term strategic investors, given significant risks such as a further fall in the lira, Emre Akcakmak of East Capital told the Financial Times.

“It is hard to say long-term strategic investors are pouring into the stock market,” he added.

Some of the inflows might be “short covering”, meaning investors trimming bearish bets on the stock market or Turks bringing back money they had stowed abroad, Murat Gulkan of OMG Capital Advisors has also told the British paper.

An unknown proportion of non-resident holders of Turkish papers are actually Turks – known as “foreigners with moustaches” in the trade – who use foreign brokerage houses.

Turkish shares and domestic debt securities held by non-residents (million USD)
A. STOCK	06/23/2023	06/16/2023	06/09/2023	06/02/2023	05/26/2023
Market Value
Equity	23,729.2	23,132.9	23,180.7	23,330.8	21,499.2
GDDS (Outright Purchase)	911.3	893.1	916.6	1,027.8	1,104.6
GDDS (Reverse Repo)	787.0	785.2	784.0	800.1	818.5
GDDS (Taken as Collateral)	383.8	380.8	391.1	420.6	462.4
GDDS (Securities Borrowing)	0.0	0.0	0.0	0.0	0.0
Debt Securities Issued by Other Than General Government	71.8	66.7	63.3	72.9	76.5
B. NET TRANSACTIONS	06/23/2023	06/16/2023	06/09/2023	06/02/2023	05/26/2023
Adjusted for Foreign Exchange and Market Price Effects
Equity	398.8	313.4	261.8	-51.9	-378.5
GDDS (Outright Purchase)	14.2	-16.2	25.2	15.0	1.6
GDDS (Reverse Repo)	-0.1	-0.1	-0.1	0.2	-2.5
GDDS (Taken as Collateral)	0.0	-11.5	0.0	-16.9	5.3
GDDS (Securities Borrowing)	0.0	0.0	0.0	0.0	0.0
Debt Securities Issued by Other Than General Government	5.0	4.3	-1.6	-0.3	8.2

Table: Portfolio flows to Turkey.

As of July 6, the USD/TRY rate in the interbank market was up by 24% to TRY26.1 from 20.96 on June 2. The latest record high of 26.32 was registered on July 5.

In the same period, Borsa Istanbul’s benchmark BIST-100 index was down 3% on a USD basis.

28 and 30 are the levels that have been pronounced for the upcoming levels in the USD/TRY chart.

In 2022, the Turkish government delayed the implementation  of hyperinflationary accounting rules, in accordance with IAS 29 accounting standards, for local companies to end-2023.

As a result, Borsa Istanbul companies’ profit figures and valuation ratios are understated. Their real valuations are not cheap.

On June 22, the central bank’s monetary policy committee (MPC) hiked its policy rate by 650bp to 15%. The market had anticipated a rate of about 25%.

Against the front-loaded expectations, the MPC said that the policy rate will be hiked gradually and normalisation (regarding non-capital controls and macroprudential measures) will also be delivered in a gradual manner.

If the rate hikes are delivered gradually, the portfolio inflows into Turkey will be limited. The finance industry will hold back until the policy rate reaches its peak.

The next MPC meeting is scheduled for July 20. As things stand, an additional 5 pp hike appears to be on the way.

Since 2020, total portfolio outflows from Turkish papers amounted to $17bn, including $10bn from equities.

So far in 2023, portfolio outflows from equities amounted to $627mn.

Story chart: Portfolio flows to Turkish papers.

The number of shares held by foreigners stood at 16.93% of total shares of Borsa Istanbul companies as of June 16, up from the historical low level of 16.80% recorded on June 5.

The figure stood at the 50% level in 2011 and the 40% level in 2019.

It is better to follow the nominal value, which also means the number of shares, when it comes to assessing the foreigners’ share in Borsa Istanbul, as the market anomalies and stock operating are not uncommon in Turkey.