Turkish stocks leap as market support efforts bear fruit

Turkish stocks surged almost 10 per cent on Wednesday as measures launched by authorities to prop up the market sent traders rushing into equities after a week-long closure.

The benchmark Bist 100 index soared 9.9 per cent on Wednesday, the biggest rise since 2008, according to Refinitiv data. Every sector advanced sharply with dozens of stocks hitting or approaching the 10 per cent limit increase limit imposed by the exchange. The big rally came after authorities suspended trading last Wednesday after the February 6 earthquake set off intense volatility and a sharp drop in share prices.

The government of President Recep Tayyip Erdoğan has taken a series of steps to boost the equities market, which has along with the lira become a bellwether locally for the country’s economic performance. Erdoğan is facing intense criticism over his handling of the worst earthquake in modern Turkish history, which has killed more than 35,000 people in Turkey and thousands more in neighbouring Syria.

Erdoğan is also facing a strong backlash over lacklustre building standards, which analysts say worsened the impact from the quake that struck in southern Turkey.

A new rule put in place on Tuesday that requires public pension funds to hold more Turkish equities will send about TL8bn ($424mn) flowing into equities in the coming days, according to Enver Erkan, an independent economist based in Istanbul. Erkan said funds would also be switching from bonds to stocks, providing a further boost to the Bist 100.

“Investors are not stupid; they see which way the wind is blowing,” said Murat Gülkan, at OMG Advisors in Istanbul, adding that increased purchases by pension funds had an important “signalling effect”.

“There will be this money coming in and not very many sellers,” he said.

At the same time, several companies have in recent days announced plans to either begin purchasing their own stock or scoop up more. A temporary loosening of taxes on corporate share buybacks in the wake of the earthquake makes the process more alluring for companies, say analysts.

Groups, including lender Halkbank, telecommunications group Türk Telekom, Turkish Airlines and steelmaker Erdemir have all made announcements in recent days.

Even after Wednesday’s rally, the Bist 100 is down about 10 per cent for the year. Investors say they are cautious about investing in Turkey’s market before the presidential and parliamentary elections scheduled for mid-May.

Erdoğan’s unconventional management of the country’s $800bn economy, which many economists blame for very high inflation, and rules that have made it more difficult to hedge against volatility in the lira have seen foreign investors exit the market in recent years.

While employing local funds and businesses to help the market may give the market a short-term boost, some investors say these tactics can backfire. Paul McNamara, a veteran emerging markets investor at GAM Investments, pointed to Argentina’s move to load up pension funds with government debt before a 2001 default as a key example of the risks.

“Pension funds doing national service seldom ends well,” he said.