Foreign investors increase exposure to Turkish equities

ISTANBUL

Capital inflows into Türkiye have resumed, mirroring trends in other emerging markets, following a partial easing of tariff uncertainty linked to former U.S. President Donald Trump.

The decline in domestic inflation and the Central Bank’s recent interest rate cuts have further supported foreign investor interest.

The Central Bank data shows that foreign investors have maintained their interest in Turkish equities for the past seven weeks, purchasing over $1.2 billion worth of shares in just one and a half months. Meanwhile, bond investments have seen net outflows.

The recent rise in risk perception around bond yields has led to a shift in portfolio preferences toward equities. The Central Bank data confirms that while foreign investors have continued buying stocks, they have moved to sell bonds.

After nine consecutive weeks of equity purchases, foreign investors briefly sold shares during the week of June 20, but resumed buying in the following weeks.

Weekly net equity purchases were $248 million on June 27, $235 million on July 4, $178.3 million on July 11, $209 million on July 18, and $205 million on July 25. Although purchases declined to $135.5 million on Aug. 1 and $78 million on Aug. 8, the buying trend persisted.

On the bond side, foreign investors made a $106 million net purchase in the week ending July 25, followed by net sales of $47 million and $32 million in the weeks ending Aug. 1 and Aug. 8, respectively. Whether this equity buying trend will become permanent is expected to become clearer in September, according to analysts.

Presenting the bank’s quarterly inflation report at the Istanbul Financial Center on Aug. 17, Governor Fatih Karahan noted the increased risk perception around bond yields and the shift in portfolio preferences toward equities.

“Due to high debt levels, risk perception regarding bond yields has relatively increased. On the other hand, equity markets are performing well globally,” Karahan said. “We are seeing a shift in portfolio preferences toward equities.”

Karahan also highlighted that capital inflows into Türkiye resumed in May, similar to other emerging markets, as tariff uncertainty eased.

“Looking at foreign investor positioning, the improvement since April became more pronounced in July,” he said.

Gross reserves rose from $124 billion in March 2024 to $174 billion by Aug. 8, while net reserves excluding swaps increased by $114 billion to reach $50 billion.

Karahan emphasized that the bank’s firm stance on tight monetary policy has contributed to improved risk and volatility indicators in the markets. “As we continue this stance in a way that reduces inflation and inflation-related uncertainties, we expect the positive trend in risk indicators to persist,” he added.

Experts are attributing the sustained foreign equity purchases to the continued decline in inflation and the bank’s rate cuts. However, they cautioned that the permanence of foreign inflows will depend on developments in the domestic political and landscape, including the main opposition Republican People’s Party’s (CHP) Congress lawsuit scheduled for September.