Turkish stocks have rallied this year. Correction: Turkish stocks were bound to rally this year. Valuations started so low that the minute optimism abounded that an improvement in economic policy making was coming following president Recep Tayyip Erdogan's re-election as president in May that a rally almost had to begin.
Reeling from years of unorthodox monetary policy, Turkey's economy had spiralled into high inflation as the value of the lira plummeted. Inflation topped 85.5% in 2022 and is still over 60% now, while the lira has sold off from TL2.17 to the dollar, to around TL28.50 as of this week.
But with interest rate policy shifting back to orthodoxy after the election in May, and optimism returning following Erdogan's economic rethink, a rebound in the stock market began to take hold in the middle of this year.
The Bist 100 index is up 38% this year. This rather incredibly makes Turkey's stock market one of the best performing in the EMEA region.
But for the rally — and recovery — to last, there is still much more fundamental improvement required. Until inflation is tamed and the currency stabilises, the country's equity capital markets will remain unpredictable.
Foreign investors will continue to hesitate when asked to commit large amounts of capital to the country's companies. And although optimism around the new policy cycle has tempted some back, it is unclear how much of this restored confidence translates into a long-term view.
By some measures, in fact, the rally could be said to be overdone, sources have told GlobalCapital and that investors have priced in a lot of the expected good news that the first chapters of the country's new policy story suggest may yet come.
They must hope that the country stays the course and fulfills its promise to restore economic health.