BIST 100 completed the first half of the year at the top among global indices

MT Portföy Portfolio Manager Umut Deniz Pak emphasized in an interview with AA that the BIST 100 index ranks first globally in terms of both TL-based and dollar-based returns.

Pak stated that since the beginning of the year, the MSCI Turkey index has outperformed the MSCI Emerging Markets index by 29% and the MSCI World index by 23%. 'Following the general elections, the shift to tighter policies to combat inflation, the observed decrease in the country risk premium, the stabilization of exchange rates, the increase in the Central Bank of Turkey's (CBRT) foreign exchange reserves, and the credit rating upgrades have supported the stock market,' Pak said.

Despite the positive market trend, Pak noted that it is challenging to say the upward movement is widespread:

'In the first half of the year, only 34% of the stocks traded on Borsa Istanbul outperformed the BIST 100 index, while 19% of the stocks closed the first half with negative returns. During this period, the impacts of tight monetary policy were occasionally reflected in company balance sheets. Additionally, the effects of inflation accounting practices on financial statements and the confusion they caused were significant factors in pricing. On a sectoral basis, we see that the banking sector has led the upward trend in the market. Since the beginning of the year, the banking index has outperformed the BIST 100 index with a 74% increase. The downward trend in Turkey's 5-year credit default swap (CDS) has influenced investors' interest in bank stocks. The insurance index, the trade index composed mainly of food-retail companies, and the communication index also provided returns above the BIST 100.'

Pak noted that although foreign investors were occasionally active on the buying side of Borsa Istanbul in the first half of the year, there has been a foreign outflow from the stock market in the last 1.5 months. According to CBRT data, foreign investors have sold approximately $1 billion in net stocks since the beginning of the year, while they have purchased $8.8 billion in government debt securities (DIBS). Therefore, while foreign interest in the fixed-income side continues to increase, the long-term and high-volume foreign investor profile has yet to participate in the market as expected.

Pak stated that inflation will be the market's most critical issue in the second half of the year. Due to the high inflation observed last year, especially in the summer months, they expect the base effect to come into play from June this year and annual inflation to trend downward.

Pak added that they expect an increase in foreign interest in Borsa Istanbul in the medium term if the anticipated credit rating upgrades and the targeted decrease in annual inflation occur following the official exit from the grey list on Friday.

'The Central Bank is particularly focused on the slowdown in domestic consumption regarding inflation. The consumer confidence index, announced in June, has fallen to its lowest level of the year, indicating a slight cooling in domestic consumption. Considering all these factors, we expect the positive trend in the stock market to continue in the second half of the year. However, due to the high-interest rate environment, we consider occasional correction processes, which can be exhausting for investors, to be normal.'

While optimistic about the stock market, we must also note that we are selective. Sectors such as telecommunications, food and beverage, aviation, food retailing, and healthcare will be prominent. Suppose expectations for interest rate cuts emerge towards the end of the year. In that case, industrial companies, exporters, and real estate investment trusts (REITs), which underperformed in the first half of the year, may come to the fore. Although the potential for valuation in banks has decreased after the performance in the first half, the liquidity of sector stocks in case of possible foreign inflows may highlight banks periodically.'

The above text from the Anadolu Agency news dated 02.07.2024 was translated into English.
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