Emerging-market stocks rallied on Friday, driven by tech companies in Asia, following U.S. data which boosted investor optimism that the world’s biggest economy will avoid a recession.
The MSCI gauge for developing world stocks climbed as much as 1.6 per cent, extending their weekly gains to 2.8 per cent, on track for the biggest since April, however Turkish stocks slumped by 1.61% on Friday, losing more than 20% in TL terms since 2024 zenith.
Why are Turkish stcoks not finding traction at a time when EM has rediscovered its mojo?
Mr Zeynel Balci who writes for daily Hurriyet thinks:
“Mehmet Simsek’s economic reform program left an optimistic impact on the markets. However, due to its side effects, it has not been able to move the markets for a while. Domestic market needs new stories to push on with a new rally phase.
Expectations that will drive positive pricing in Borsa Istanbul faded firstly because, summer data revealed that recession has become more of a possibility. The fact that the desired result has not yet been achieved on the inflation side, one of the most important benchmarks of the economic reform program, is seen as one of the developments that prevent the emergence of a special story or anchor that will raise awareness for Turkey’s financial markets.
It is possible to list other developments that weaken the market, such as signs of slowdown in the economy, the weak outlook of company profits for the first half of the year, the announcement of preparations for inflation accounting to be applied to banks, the continuation of foreign sales in the stock market, and the decreasing interest of domestic investors all contibute to the sell-off.
The dismal outlook causes Turkish stocks to diverge negatively from EM, but also highlights that most negatives are baked into prices.
Foreign sales in stocks continued in the week of August 9, amounting to 323 million dollars on a weekly basis. But, global fujnds purchased $17 million in bonds. “Sell stocks, buy bonds” policies continue, which reduces interest by high net worth domestic investors, who have a habit of following moves by global funds.
It is an important detail that negative developments are priced to a certain extent
In addition, the continued improvement in EM conditions may serve as a good reference for domestic markets in the coming periods. All these being said thoough, it seems likely that current market lull will be maintained for a while longer.
Returnnig to economy, which dirtves company earnings data such as the increase in unemployment rates despite the summer season and the contraction in the industry, combined with high inflation, brought the spectre of stagflation to the agenda of ivnestors, again. This situation also raises the question of how weakened sales income would impact debt payment capacity of listed companies in the future.
Investors will closely monitor the CBRT meeting on Thursday, August 22, where no interest rate change is expected. If the CBRT does not make a surprise, the weak outlook in Borsa Istanbul will continue.
Technical analysis indicates that it is possible for the BIST-100 Index, which closed the week at 9,821 points, to decline up to 9,200 points in the first instance.
Author: Zeynel Balci, financial affairs columnist for daily Hurriyet
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/