Turkish bank stocks’ rollercoaster ride leaves investors reeling

Morning sunlight breaks through residential homes stretching to the Istanbul skyline in Turkey June 13, 2018. REUTERS/Russell Boyce

ISTANBUL, Sept 16 (Reuters) – The dizzying volatility in Turkey’s bank shares has left investors reeling after a market rise this year, buoyed by the highest available real yields, gave way to a sharp drop this week.

Between July 14 and the closing high of September 12, the main Borsa Istanbul index (.XU100) rose 53.7% in lira and 46.85% in dollars. During the same period, the banking index (.XBANK) increased by 151.2% in lira and 140% in dollars.

Reversing sharply, lender shares have plunged as much as 28% since Monday’s closing price.

The initial spike came as inflation, running over 80% last month, fueled a nationwide cost-of-living crisis that was sparked a year ago by unorthodox interest-rate cuts urged by President Tayyip. Erdoğan. read more

Rampant inflation prompted investors to plunge into stocks to protect savings, analysts said. The shares were also seen as a hedge against a slide in the lira, which lost 44% against the dollar last year and another 27% this year.

“Everyone has been scratching their heads about what’s going on here,” said Oliver Adcock, manager of Nedgroup Investments Global Emerging Market Equity Fund.

“I think retail investors are buying to hedge inflation risk and… have been allowed more leverage.”

Bank stocks have risen more than others on the Istanbul stock exchange as results in mid-July showed their gains soared by 400%.

Before bank shares reversed sharply this week, investor gains largely went to locals: foreign investors’ share of Turkish stocks fell to 33% in July from 63% at the start of 2020.

Foreign participation reached a high level in mid-August and was 35% on August 25, bourse data shows.

Cemal Demirtas, deputy general manager of Ata Invest, said global inflation lifts all stock markets and Turkey has also benefited from recent exchange rate stability and a “balanced” foreign policy.

“So I can’t say that the long-standing rise in the stock market is unfounded. However, extreme ups and downs don’t make sense.”

Analysts said highly leveraged futures positions had fueled the rise in the banking index and margin calls helped fuel the subsequent decline.

A banking analyst who requested anonymity said that particular companies were trading in the futures market.

“It is very clear that some brokerages are leading the trades,” but clients are not clear, the analyst said.

The Turkish Wealth Fund (TWF), cited in some media reports as a buyer of the futures market, told Reuters it had made no such transactions.

The TWF, Turkey’s strategic investment arm, said it focused on optimal financing and investment, as well as transparency.

“In this context, we share our transactions with the public. There was no transaction regarding bank shares on the Istanbul Stock Exchange,” TWF said in response to a query.

Soner Kuru, an economist at Marbas Investment, said the latest selling of bank shares after the rally was partly due to higher-than-expected US inflation figures.

“We expect volatility in the market to continue… (and) we continue to view pullbacks as buying opportunities,” he said.

Additional reporting by Azra Ceylan in Istanbul and Marc Jones in London; Written by Daren Butler; Edited by Jonathan Spicer and Nick Zieminski

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