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Capital Flight from Turkish Assets Accelerates Amid Post-March 19 Political Uncertainty

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Turkey is witnessing a notable capital outflow from Turkish lira-denominated assets following the political turmoil sparked on March 19. According to recent financial data, investors are shifting from lira-based investment funds and deposits back to foreign currency holdings, signaling a renewed loss of confidence in local assets.

Investment Funds Lose 4.7% in a Month as Wealthy Investors Pull Out

Data from the Central Securities Depository (MKK) revealed that the total value of investment funds fell by 4.7% in March, dropping to ₺4.98 trillion, while the number of fund investors decreased by 1.31% to 5.5 million.

  • Investors with portfolios above ₺10 million withdrew over ₺101 billion

  • The steepest decline occurred in the ₺1–5 million bracket, with a 11.5% drop

  • Investors in the ₺500K–₺1M range also pulled back significantly, with a 10% portfolio shrinkage and 9.7% drop in participant numbers

This marks the first simultaneous decline in both portfolio value and investor participation since May 2023.

$9 Billion Inflow into FX Accounts in Just Three Weeks

According to Central Bank data, domestic foreign exchange (FX) deposits—adjusted for exchange rate impact—rose by $9 billion in the first three weeks of March alone. In the week of March 21, the inflow peaked at $5.9 billion, the largest weekly increase on record.

Year-to-date, FX accounts have swelled nearly $14 billion, highlighting the investor pivot to 'safe haven' assets amid escalating risk perception.

TL Deposits Lose Ground as Dollar Demand Rises

Figures from the Banking Regulation and Supervision Agency (BDDK) show that:

  • The share of standard lira deposits in total deposits fell from 59.3% in February to 58.3% at March-end

  • FX deposits, meanwhile, rose from 35.9% to 37.9%

Despite a simultaneous decline in FX-protected lira accounts, the overall demand for foreign currency sharply increased, indicating waning confidence in the Turkish lira.

Political Instability Undermines Economic Confidence

The arrest of Istanbul Mayor Ekrem İmamoğlu on March 19 triggered a wave of political uncertainty, disrupting the financial markets. The incident directly impacted investor sentiment, leading to an abrupt reversal in lira-focused investment behavior.

“The risk perception shift post-March 19 accelerated the outflow from lira assets,” analysts note.

Market Outlook: Policy, Politics, and Global Risks to Shape TL Assets

Looking ahead, investors remain cautious. The future of lira assets will be shaped by:

  • The Central Bank's monetary policy direction

  • Domestic political developments

  • Global financial conditions

Economists stress the need for restoring investor confidence, calling for institutional reforms and policy clarity to stabilize markets and reduce dollarization.

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