Turkish bank stocks’ rollercoaster ride leaves investors reeling

ISTANBUL, Sept 16 (Reuters) – Head-spinning volatility in Turkey’s banking shares has left investors reeling after a 100% stock market surge this year, driven by the highest available real returns, gave way to a sharp slide this week.

Between July 14 and the closing peak on Sept. 12, the main Borsa Istanbul index (.XU100) rose 53.7% in lira terms and 46.85% in dollar terms. Over the same period, the banking index (.XBANK) surged 151.2% in lira and 140% in dollar terms.

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

The initial rally came as inflation, at more than 80% last month, stoked a nationwide cost-of-living crisis that was set off a year ago by unorthodox interest rate cuts urged by President Tayyip Erdogan. read more

The rampant inflation prompted investors to dive into equities to protect savings, analysts said. Stocks were also seen as a hedge against the tumbling lira, which lost 44% against the dollar last year and another 27% this year.

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

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

Bank shares have surged more than others on the Istanbul exchange, since results in mid-July showed their profits leaped by some 400%.

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

The foreign share edged high in mid-August and was 35% on Aug. 25, the exchange’s data shows.

Cemal Demirtas, deputy general manager at Ata Invest, said global inflation lifts all stock markets and Turkey had also benefited by the recently stable foreign exchange rate 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 do not make sense.”

Analysts said highly leveraged futures positions had driven the bank-index rise, and margin calls helped drive the subsequent decline.

A banking analyst who requested anonymity said some companies in particular were carrying out the transactions in the futures market.

“It is very clear that some brokerage houses are leading the transactions,” but the clients are unclear, the analyst said.

The Turkish Wealth Fund (TWF), cited in some media reports as a futures-market buyer, told Reuters it had not conducted such transactions.

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

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

Soner Kuru, economist at Marbas Investment, said the latest bank-stock sales, after the run-up, were triggered in part by higher than expected U.S. inflation figures.

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

(This story was refiled to fix typo in title of fund manager in paragraph 6)

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

Source.