Not Even a $35 Billion Turkey Stock Slump Can Deter Local Buyers

(Bloomberg) --

The latest market rout in Turkish assets erased about $35 billion from the value of Istanbul-listed companies, but it has fallen short of discouraging local buyers.

The Borsa Istanbul 100 Index fell 11% in the two weeks through Friday as the lira weakened to a record low. At the same time, the Borsa Istanbul SME Index of smaller companies typically favored by Turkish mom-and-pop traders climbed more than 6%, suggesting the sell-off was mostly down to non-residents.

Unlike foreigners, locals don’t put in place a stop-loss strategy when they trade, said Burak Isyar, head of equity research at ICBC Turkey Yatirim, referring to a method of limiting the damage from market slumps. “They’d probably sit and wait for a while.”

Locals have few alternatives to the stock market, should they attempt to flee declines, given the persisting low interest-rate environment. Those conditions were among the main factors that drove the equity market rally and the retail stock-buying frenzy this year.

In another sign that the latest retreat was probably driven by foreigners, brokerage activity data show that three of the five biggest net sellers over the past two weeks were the Turkish units of global financial firms whose clients are mostly overseas investors.

Equity-market accounts have climbed by 37% this year to 1.66 million, according to Turkey’s Central Securities Depository. In contrast, overseas investors have sold a net $4.3 billion of Turkish equities so far this year.

The recent plunge may have shaken some newcomers experiencing their first serious sell-off, but it still is unlikely to put them off permanently, said Haydar Acun, managing partner of Marmara Capital. “It would require a bigger shock to do that. What it can do temporarily though is to possibly spur interest in alternative investments other than the Turkish currency.”

Lira’s Record Low

The lira depreciated as much as 8.2% against the U.S. dollar since July 24, tumbling to a new all-time low on Monday, shattering the narrow trading range seen in the previous six weeks. The Turkish currency was 0.4% stronger as of 12:07 p.m. in Istanbul.

The steep drop in Turkish stocks will have served as a warning for new investors who mostly opted to follow what they saw as a rising trend, instead of doing careful analysis before buying stocks, according to Burak Cetinceker, a money manager at Strateji Portfoy. But he predicted that the experience would help many day traders become long-term investors.

At least one young market participant echoed that view.

Ismail Yeniceri, a 22-year-old student who has a part-time job, said he used the past year to acquaint himself with the equity market and test his analysis by investing small amounts of money. And he will continue to do so.

“Stocks rose so much within a short-period and I was expecting a retreat, so I sold more than half of what I owned just before the sell-off started,” Yeniceri said. “I still own some equities, but I plan to stay in cash till September. Then I will start buying more of the shares I designated along the way when their prices fall within my target.”

©2020 Bloomberg L.P.