Istanbul The lira is falling, prices in the country are rising, inflation and the war in Ukraine are also putting pressure on the markets in Turkey – and yet the Istanbul stock exchange is one of the strongest in the world. While Dax and Dow Jones are struggling with the consequences of the central banks’ new policy, the money watchdogs in the USA and Europe want to curb the economy and thus inflation, which is also depressing share prices in many countries, the Istanbul Stock Exchange does not have such fears.
Year-to-date, the ISE100 index is up 71 percent. Even if you convert the prices of the companies in the index into euros, the result is growth of almost 50 percent.
The Turkish economy surprises once again with an extremely unorthodox development. The courses have fallen recently. But the government of President Erdogan is likely to take countermeasures quickly. On the one hand, this speaks for another boom – but also for a risk that increases in the shadow of rising prices.
From Tokyo to Washington, from Stockholm to Brazil – almost everywhere in the world central banks have raised interest rates this week or at least kept them stable. The reason is the fight against global inflation.
Top jobs of the day
Find the best jobs now and
be notified by email.
However, interest rates have fallen in the country with one of the highest inflation rates in the world: Turkey. Turkey’s central bank cut interest rates again despite inflation at a 24-year high and the lira is trading at a record low. The Monetary Policy Committee, led by Governor Sahap Kavcioglu, cut the one-week interest rate for commercial banks from 13 percent to 12 percent on Thursday. In a statement, the committee justified the move with a “loss of momentum in economic activity”.
>> Read here: The day of interest rate hikes – the central banks are getting serious
This policy has now driven inflation to 80 percent. At the same time, the lira has lost more than a quarter of its value against the US dollar since the beginning of the year. What appears to be the path to a sharp economic crisis has in fact helped many companies in the country.
Above all, export-oriented corporations and medium-sized companies in the country have benefited from the weak lira. This means that your products will be cheaper abroad, and sales will increase as a result. More and more German companies are also relocating their supply chains from East Asia to Turkey and other nearby countries.
The order books of many producers in the country have been well filled since then. “I receive orders from German companies that I haven’t heard from for years,” Alper Kanca, head of the Turkish automotive supplier of the same name, tells Handelsblatt. Month after month since the beginning of the year, Turkish exports have broken all records in the country. In August, exports were 13.1 percent higher in dollar terms than a year earlier. For the first eight months, the plus is 18.3 percent. Turkish companies have already exported more than the government had calculated for the year as a whole.
More and more Turks are investing in stocks
The Turkish automotive joint venture Ford Otosan, for example, made a net profit of 2.8 billion lira in the first quarter of the year, the equivalent of around 180 million euros. That is 54 percent more than in the same period last year. The following quarter looked similar.
The financial service provider Akbank also made around eight billion lira net profit (515 million euros) between January and the end of March, an increase of 297 percent compared to the same quarter last year and an increase of 68 percent compared to the final quarter of 2021.
Food maker Tat Gida saw pre-tax profit triple, defense maker Aselsan’s net profit 37 percent, vehicle maker Otokar 87 percent, Garanti Bank 206 percent and iron maker Kardemir 121 percent.
>> Read here: Spend money before it’s worth nothing – How Turks experience hyperinflation
At the same time, more and more people in the country are investing in stocks, hoping to get a higher return than inflation. Many invest their money almost indiscriminately, without having adequately informed themselves beforehand. “I just invested 100,000 lira in Turkish stocks,” says a man at a bank branch in Ankara. He doesn’t know the companies, but shows a list of stock codes on his cell phone. “A friend sent me this and said buy these stocks, you can’t go wrong with them.”
A frighteningly banal form of investment advice. But given the alternatives, not much is left. Ten-year Turkish bonds are currently paying interest at 10 percent, 70 percentage points below inflation. Real estate, on the other hand, has become more and more expensive in Turkey. Buyers from Turkey, but also from Russia, Ukraine and Iran have been hastily buying houses and apartments in Turkey since 2020, driving prices up. Even for a plot of land without a building permit outside of built-up areas, the equivalent of up to 700 euros per square meter is required, according to the Sahibinden portal.
But foreigners are also driving the rally, according to industry services, with hundreds of millions of dollars currently flowing into Turkish assets. The stock market benefits from this.
Shares in kitchen appliance maker Arcelik, for example, are up 42 percent year-to-date, as are shares in Aselsan, a well-known Turkish arms maker. Shares in the Dogus Oto company, which carries out construction projects in Turkey and sells cars from Volkswagen, among others, have risen by more than 100 percent since the beginning of the year. Also many financial stocks such as Akbank or Garanti Bankasi. The share prices of the Is-Bank have tripled in the meantime. Yapi Kredi, whose share prices had risen similarly, surprised with a record profit in June. Inflation and increased economic activity are enticing many people in the country to do more banking, which is boosting financial house sales.
The recent fall in prices is an entry signal for many – but also a risk
However, prices have been falling for a month. Is Bank has lost a third, and Dogus Oto and other companies have suffered similar losses. There are a lot of reasons for that. Analysts suspect investors will take profits before the economic situation worsens. Higher interest rates for business loans are also a sign that banks have less faith in the boom than they did a few months ago.
According to analysts, Turkish stocks are still cheap. In a study, JP Morgan comes to the conclusion that the Turkish stock market is the cheapest in the so-called CEEMEA region. These include Central and Eastern Europe as well as the Middle East and Africa. The price-earnings ratio (P/E) is therefore 2.2, after 6.0 in January 2021. In the Dax, the average P/E is currently 12.1.
In Turkey, therefore, many analysts are still recommending entry in the hope of a resurgence of this year’s rally. But the next boom, like the previous one, depends on politics in Ankara. And that has become extremely dependent on the President himself.
Head of state Erdogan has accumulated so much power that he has a lot to say geopolitically. Turkey has risen to become the chief mediator in the Ukraine war. In addition, Turkey has not imposed any sanctions on Russia and receives comparatively cheap natural gas from the country.
But if the government in Ankara soon gives in to Western pressure to introduce penalties against Moscow, Erdogan’s economic policy could collapse like a house of cards. Import costs are already rising faster than export earnings in the country. This deficit must be financed. But with low interest rates, it’s getting more and more expensive.
The upcoming elections in June could also tempt Erdogan to fight inflation with higher interest rates to calm the population. However, such a reversal in monetary policy could weigh on stock prices. Thus, the rally in the Turkish stock market also depends very much on how the Turkish president acts – and whether the inflated economy can really help him win elections.
More: Land am Limit – a journey through the German middle class