Turkey stocks were lower after the close on Wednesday, as losses in the Transport, Wood, Paper & Printing and Sports sectors led shares lower. At the close in Istanbul, the BIST 100 declined 2.18%. Falling stocks outnumbered advancing ones on the Istanbul Stock Exchange by 459 to 113 and 7 ended unchanged. USD/TRY was up 0.46% to 34.46, while EUR/TRY fell 0.71% to 36.33.
Last week, Turkish stocks began recovering summer’s losses, as several leading brokerages predicted Central Bank (CBRT) starting its easing cycle as early as December to give stocks a much-need story to cling on. Additionally, September-October data revealed a recovery in economic activity, which ought to manifest in upgrades of 2025 earnings, in particular for those firms catering to the domestic market.
Yet in the last two trading days Turkish stocks slumped by over 4%, as carry trade headed for the door.
According to Sebnem Turhan of the leading economic news website Ekonomim, On the first trading day of the week, there was an outflow of approximately USD 3.5-4 billion from TRY, of which approximately USD 3 billion was foreigners, according to the calculations of market experts. While foreign exchange sales were made by the public against this sharp outflow, Central Bank reserves declined as of the first 15 days of November, and the USD/TRY rose by more than 1 percent. Market experts stated that the economy management set the defense barricade at the level of TRY 34.60 and emphasized that it is likely that there will be a piecemeal exit until the end of the year, but they do not expect a shock.
Turkish new site BloombergHT confirmed the unwinding of carry trade positions, while Bloomberg commented:
Turkey’s lira depreciated on Monday as state lenders abstained from aggressively defending the exchange rate and traders responded by unwinding some carry trades, according to people familiar with the matter.
In a second article, Bloomberg added:
The cost of borrowing Turkish liras overnight in the offshore market spiked above 50% for the first time since early September as traders exited some of their so-called carry positions amid currency losses.
“We still believe economic policy is on the right direction in Turkey but attempts to ease rates in December may spark a light reshuffle of foreign positioning,” Citi strategists including Luis Costa said in a note.
Selling pressure was less severe on Tuesday, with state banks backstopping the currency, said traders familiar with the transactions, who asked not to be identified because they weren’t authorized to speak publicly. Next-day offshore forward implied yields eased from the day’s high of 62% to trade around 49%.
Yet, two sources interviewed by PA Turkey expect carry trade flows to reverse direction for the rest of the year, because of the general risk-off environment in EM FX after Trump’s election and uncertainty regarding the timing and the size of CBRT rate cuts.
Our columnist Atilla Yesilada stated that while hot money may continue to flee Turkey, the exchange rate is unlikely to depreciate significantly, because both Erdogan and the Mehmet Simsek economic management team are resolutely committed to a strong currency, as the only viable policy tool to reduce inflation. According to Yesilada, with around $160 bn in gross FX reserves vs an estimated $30 bn of hot money in the system, CBRT is comfortable defending the exchange rate at the level it desires. He predicts dollar/TL to rise by only 15% vs CBRT end-2025 CPI target of 21%.
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/