Turkish Stocks Start to Overheat on Verge of Erasing 2020 Drop

(Bloomberg) --

Turkey’s main equity benchmark is showing signs of overheating just as it’s about to erase 2020 losses.

The Borsa Istanbul 100 Index is up 1% on Friday, within 0.7% of reversing its 2020 losses and on track for its fifth weekly gain in six. The rally has pushed the benchmark to its most overbought level in three years.

Turkey’s domestic retail investors have flocked to the country’s stocks in the rebound following the pandemic-spurred global rout. The equity benchmark has climbed 35% since a March 23 low amid renewed appetite for riskier assets, outpacing developing-nation peers.

In addition to global risk-on sentiment, measures from Turkish policymakers to protect their currency and lower interest rates pushed local investors toward equities and away from fixed-income assets.

That’s helped Turkey’s benchmark almost erase an annual drop that had reached 26% in March. By comparison, the MSCI emerging-market index is still down 10% for 2020, while the Stoxx Europe 600 Index remains 12% lower.

Technical indicators are now flashing signs of overheating. The benchmark’s 14-day relative strength index soared to 80.8 points on Friday, the highest level since February 2017 and has remained above 70, the threshold for overbought, for three weeks now.

Stocks also stumbled on another technical hurdle on Friday, failing to break decisively above a key Fibonacci retracement level. The BIST 100 index is up 3.4% this week.

©2020 Bloomberg L.P.