For a long time, investors in Turkey had to invest in a shallow market, in a Stock Exchange that turned into an exchange between domestic market makers and individual investors.
The rapid depreciation of the TL caused by the “irrational” economic policies implemented, the deteriorating macroeconomic outlook, the rapidly increasing current account deficit, the new rules and macro precautionary measures coming every other day, the new regulations put into practice… All of these have led to the loss of interest of foreign investors in Turkey. The reason emerges as developments.
As a matter of fact, it is possible to see this in the “foreign rates” data published by the Central Registry Agency (MKK).
The green line in the chart shows the percentage of stocks owned by domestic investors in Borsa Istanbul in TL terms. To give an example, according to the data on 25.12.2009 on the far left of the chart, only 32.81 percent of Borsa Istanbul’s total value belongs to domestic investors. In the same period, the share of foreigners is 67.19 percent.
In fact, the rate of foreigners above 60 percent also represents a long-standing average for the Turkish Stock Exchange. When we take the graph back to 2005, what we see is that foreign investors have an average weight of more than 60 percent in the Turkish Stock Exchange.
However, this is not so today. As it is clearly seen in the chart, as of the beginning of 2019, the green line is in an upward trend, while the red line is in a downward trend. In other words, while the weight of foreign investors in Borsa Istanbul is decreasing, the weight of domestic investors is increasing rapidly.
To take a closer look at the graph and to recall the general mood of Turkey at that time, we see the regime that changed in Turkey in 2018.
With a brief reminder, the regime change was realized with the transition to the Presidential Government System, which was accepted by the majority of the people through a referendum on April 16, 2017 and started to be implemented as of July 9, 2018.
After the transition to this system, the fact that the regime was portrayed as a “one-man” regime, especially in the foreign press, caused a pessimism in the perception of the future of foreign investors about Turkey.
Especially at that time, the rapid depreciation of the TL and the sharp movements of the dollar/TL parity to the level of 7 and even exceeding it created a source of concern for foreign investors.
Küsen Foreign Investor Changed the Dynamics in Borsa İstanbul
The embarrassment of foreign investors towards Turkey and their moves to reduce the stocks they hold caused a change in the pricing behavior in Borsa Istanbul. The lack of foreign investors caused the Turkish stock market to remain unaffected, especially during periods of economic turmoil in the world. In the triangle of inflation, interest and speculation, a new dynamic was created without foreign investors. Regardless of the course of the global economy, the lack of “rational” foreign investors has deepened with the “Turkish Economy Model”. Today, the share of foreign investors in Borsa Istanbul is at historically low levels with 27 percent.
For the Stranger, Eyes were on the Election, What Was the Result?
The date indicated for the return of foreign investors to Borsa Istanbul, which was traded in a segregated manner from the rest of the world without foreign investors in a shallow market, was after the elections. As a general opinion, it was thought that the foreigner would take a position according to the economic policies to be implemented by the new government to be established after the election. However, after more than 10 days have passed since the elections and the new economy management from Mehmet Şimşek and Hafize Erkan has been included in the cabinet, no large-scale investor inflow has been observed yet.
In this period, the inclusion of names such as Mehmet Şimşek and Hafize Gaye Erkan, who have high credibility towards foreign markets, especially in appointments, in the economy management created an environment of confidence in the markets. However, although Mehmet Şimşek’s messages of returning to “rational” policies pointed to a return from the system popularly called the “Nas” economic model or the “Turkey” economic model, the foreign investor did not show a sudden reaction to these expectations.
According to the information calculated based on the transactions carried out by foreign institutions on Borsa İstanbul, the foreigner’s weight in Borsa İstanbul was 27.90 percent as of the closing date of last Friday. This rate was 27.60 percent at the end of May.
In other words, it shows that there has been no change in the interest of foreigners in Borsa Istanbul in the last 10 days after these elections.
However, there was a prevailing opinion that the economic management of Şimşek’s Erkan was the most suitable names to attract foreign investors, especially since they had international credibility. In fact, Mehmet Şimşek had already started to build the bridge between Turkey and the outside world with his foreign tweets in the first days of his duty.
The foreign investor may not have set foot in Turkey yet, but it is certain that the new economic management has inspired confidence in the international public opinion. While many foreign institutions such as JPMorgan and Golman Sachs published reports expressing their views on the future of Turkey after the new economic administration, Deutsche Bank commented: “The markets welcomed the Şimşek and Erkan duo positively”.
The messages given in the country will have had a positive impact, as Borsa Istanbul has increased by 6 percent in the last 5 days and by 20 percent after the elections.
Foreign Buys Some Shares, But Insufficient
According to the compiled information, while foreign inflows to some shares have been going on for a while, these inflows were not at the expected level. While the foreign weight of Anadolu Efes (AEFES) stock has increased for 10 days, the change was only close to 200 basis points. As of the end of May, the foreign share in the stock was 61 percent, while as of last Friday, this level was just over 63 percent.
There is no visible change in the banks, which were shown as the first shares that foreigners would prefer to buy before the election. The share of foreigners in Yapı Kredi Bank increased by 1 percent to 25 percent, while the share of foreigners in Garanti Bank decreased from 8 percent to 6,55 percent in banks that pulled the rope in the rise in Borsa Istanbul after the election.
Akbank, on the other hand, stands out as the banking share with the highest foreign weight, with 44.5 percent. Akbank is followed by İşbank with a foreign share of nearly 36 percent.
When we look at the index in general, we see that foreign investors have moved away from Sasa Polyester shares in the last 1 week, as well as shifting attention to stocks such as Koç Holding. In the last week, Koç Holding’s foreign share has increased by nearly 3 percent to close to 60 percent, while the foreign share of Sasa Polyester has decreased from 33.10 percent to 14.60 percent. In the same period, Sasa Polyester achieved a 13 percent return, while Koç Holding increased by 21 percent.
What Is The Stranger Waiting For?
When there was no foreign entry to Borsa Istanbul after the elections, the question “What are the foreigners waiting for to return?” The question started to come up.
First of all, although foreign investors are satisfied with the post-election new economy appointments, they are still hesitant about the sudden activity in the dollar/TL parity. In the economy, as Mehmet Şimşek says, “rational” ground return seems certain, but the sharp rise in the dollar/TL parity is still a danger for foreign investors. However, foreigners still have not seen a clear move from the economy management to the rationale, and it is likely that the eyes will be on the interest rate decision to be made on June 22 to see this return. It is possible to read this from the reports published by foreign institutions.
The rise in the dollar/TL is another dimension of the business. Foreign investors are aware that Turkish stocks are very cheap in dollar terms, but every depreciation in the TL erodes their investments in dollar terms. For this reason, Bank Of America (BofA) has published an information note containing 4 conditions that it expects to be fulfilled in order to re-invest in TL.
first condition: Increasing the average cost of funding from currently around 8.9 percent to at least 40 percent to allow domestic demand to weaken enough to stabilize the current account balance at a sustainable level.
Second condition: Dollar/TL exchange rate above 25.
Third condition: Removal of restrictions on corporate dollar purchases and interventions in the foreign exchange market.
Fourth condition: He emphasized that the global dollar outlook should not be bullish.
4 conditions of Bank of America for investable TL
As can be understood from this, foreign investors want to see a stability in the exchange rate and a clear reflection of the return to rational policies in the economy.
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