William Sellars:  Turkey becomes a short-term investor haven from Trump–editors’ commentary added

Turkey is being seen as a relatively safe harbor among emerging markets by investors looking to shield their funds from aggressive US trade policies, although Ankara is not immune to Washington’s ire.   Two Turkish market participants confirmed rising position-taking in TL rate and credit instruments by foreign financial investors.  Flows have been almost exclusively limited to fixed income side, with Borsa Istanbul rarely been visited. However a recent report by JP Morgan recommending OW positions in Turkish stocks could precipitate new interest. There has been a recent move back into Turkish debt instruments, with local bonds attracting $1.9 billion in foreign capital in the first three weeks of 2025.   Foreign investors now hold just over 10 percent of government debt, similar to levels in 2019.   Although they are increasing, this is still well short of the 25 percent posted mid-2018, when uncertainty over government economic policy meant funds retreated from the market.   However, the inflow excepts foreign investments through currency and interest rate swaps, which invest into short-term TL instruments, such as short bonds and the repo market.   Perhaps not so strangely, foreign institutional investment is yet to discover Borsa Istanbul, where global funds shorted the market to the tune of $3bn.  According to domestic research, 2025  consensus BIST-100 main target is 14K points, translating into a 40% TL upside.   This investor appetite is likely to expand further later this year, believes Iris Cibre, a financial markets executive.   “As interest rates fall, and the commitment to orthodox monetary policies continue, we will see more of a move into stocks that we are already seeing into bonds,” she says, though adding that this movement will not extend into direct investments.   “The main reason for this is unpredictability in the economy as rules and regulations can change very rapidly,” Cibre says.   “In terms of foreign investors, the appetite to make long-term commitments is low for now.”   Deutsche Bank Turkey CEO Orhan Özalp told Bloomberg HT, "Turkey has convinced foreign investors, whom it had repulsed for a long time, and they now have Turkey on their radar. The interest is gradually translating into new positions for  short maturity fixed income assets." In the last 15 days, we have seen certain funds, especially in the bond market, that we have not seen since 2015-2016, invest in Turkey again. After the January meeting of the Central Bank, they also started to take short-term positions. "Türkiye has convinced foreign investors, whom it had resented for a long time, and they had Turkey on their radar last year."

What about Trump?

With unpredictability a leitmotif of the new Trump administration, Turkey could find itself on the wrong side of the US economic ledger.   Direct action targeting the EU or China, such as the across-the-board 10 percent or more increase in tariffs proposed by Trump, could have a flow-on effect for Turkey.   With the EU Turkey’s largest trading partner, and Beijing now Ankara’s biggest single bilateral trade partner, any US policies that slowed economic growth in either could weaken demand for Turkish goods and services in these key markets.   “The EU economies are already stagnant,” Özgür Ünlühisarcıklı, the Ankara office director at the German Marshall Fund of the US, tells AGBI. “If the EU economies are harmed by tariff increases Turkey would be hurt as well.” Though it is assumed that Turkey-US relations under the new Trump presidency will be better than the previous administration, there are also risks to the relationship, he says.  “One of the greatest is the issue of Israel,” says Ünlühisarcıklı.   “In the Trump era, the US will increase its support for Israel at every level. On the other hand, Turkey’s reality is to retain its support for the Palestinians and Hamas. This poses a real risk of tension.”   AGBİ, ParaAnaliz   IMPORTANT DİSCLOSURE:  PA Turkey intends to inform Turkey watchers with diverse views and opinions.  Articles in our website may not necessarily represent the view of our editorial board or count as endorsement.    Follow our  English language YouTube videos  @ REAL TURKEY:   https://www.youtube.com/channel/UCKpFJB4GFiNkhmpVZQ_d9Rg And content at Twitter: @AtillaEng Facebook:  Real Turkey Channel:   https://www.facebook.com/realturkeychannel/