Capital flows from foreigners into Turkish stocks and bonds are set to turn positive in 2023 for the first time in six years, thanks to favorable sentiment following Turkey’s pivot in June toward higher interest rates and a more orthodox monetary policy.
Foreign investors bought a net $528.6 million in Turkish equities and bonds last week, taking cumulative inflows this year to $1.1 billion, according to central bank data. The last year foreigners were net buyers of Turkish assets was in 2017.
Since Turkey’s President Recep Tayyip Erdogan appointed two former Wall Street bankers to manage the country’s economy in early June, foreigners bought a net $2.7 billion in Turkish stocks and bonds. The benchmark Borsa Istanbul 100 Index has risen 71% in lira terms and 18% in US dollar terms since presidential elections in May, while Turkish eurobonds and lira bonds have started rallying since then.
Both Treasury and Finance Minister Mehmet Simsek and the Central Bank Governor Hafize Gaye Erkan have advocated gradual changes to unorthodox policies. Overseas investors appear to be more optimistic and may be ready to give a chance to Turkish assets again after years of unconventional policies sent foreign ownership to record low levels.
Capital flows turned negative back in 2018, when Erdogan appointed his son-in-law Berat Albayrak as economy czar. Investors saw that move as paving the way for the president to exert heavier influence over the economy’s administration. For much of the intervening period, Erdogan championed unconventional policies that prioritized growth at the expense of price stability, prompting an exodus of foreign investors.
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