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Foreign Investors Return to Turkish Equities, but Political Tensions Weigh on Borsa Istanbul in September

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Summary:


Following the arrest of Istanbul Mayor Ekrem İmamoğlu on March 19, both local and foreign investors rapidly exited Turkish assets, especially equities. After a tentative rebound in July, capital inflows accelerated in August, boosting stock allocations in investor portfolios. However, escalating political tensions in September have triggered fresh volatility, dragging the Borsa Istanbul BIST100 index down more than 7%.

Investor Exodus After İmamoğlu’s Arrest, Followed by a Strong August Rebound

The arrest of Istanbul Metropolitan Municipality Mayor Ekrem İmamoğlu on March 19 sparked a wave of investor outflows from Turkish lira (TL) assets, particularly equities.

According to Turkey Capital Markets Association (TSPB) data, sentiment recovered in July and strengthened in August:

  • Local investors’ equity holdings rose to 11.71% of total financial assets.

  • Foreign investors’ share climbed to 12.26%, signaling renewed confidence.

Foreign Investors Boost Stock Exposure by 15% in August

TSPB’s August data reveal a significant shift among foreign investors:

  • Total foreign financial assets surged 9.71% month-on-month to ₺5.18 trillion.

  • Equity holdings jumped 15.15%, marking the fastest-growing asset class.

  • Government bond holdings increased 9.90%, also signaling improved sentiment.

Despite these inflows, foreign investors’ TL deposits fell to 8.66% of total portfolios, while FX deposits declined to 17.52%.

Local Investors Favor Equities, Eurobonds, and Bonds

Local investors’ total financial assets climbed 3.17% in August to ₺39.07 trillion. Portfolio composition showed notable shifts:

  • Private-sector eurobonds: up 7.74%

  • Equity holdings: up 6.47%

  • Government bonds: up 5.05%

Conversely, TL deposit share fell to 35.49%, down 0.71 points from July, while FX deposit holdings slid to 14.86%.

Political Uncertainty Triggers September Volatility

Despite strong inflows in August, September began with heightened political risks.

  • The cancellation of the CHP Istanbul Congress

  • The appointment of a trustee (kayyum) to Istanbul Metropolitan Municipality

These developments drove renewed volatility across Turkish markets:

  • BIST100 index has fallen 7.14% month-to-date.

  • Banking index dropped 7.12%.

  • Only the SME index (+1.48%) and textiles index (+1.7%) remained in positive territory.

Borsa Istanbul Index Performance (September 2025)

As of 13:45 local time, key index movements:

  • BIST100: -7.14%

  • BIST30: -7.31%

  • Banking: -7.12%

  • Industrial: -5.73%

  • Services: -5.73%

  • IPO Index: -4.14%

  • Chemicals: -5.36%

  • Transportation: -5.80%

  • Trade: -7.85%

  • Tourism: -0.95%

  • Technology: -3.37%

  • Sustainability: -7.24%

  • SME Index: +1.48%

  • Textiles: +1.7%

Outlook: Foreign Appetite Grows, but Political Risks Dominate

Despite foreign investors’ growing equity exposure — now at 59.51% of total portfolios — analysts warn that political risk remains the key driver for Turkish markets.

With heightened uncertainty surrounding CHP leadership disputes, trustee appointments, and municipal governance issues, short-term volatility in Borsa Istanbul is likely to persist.

Source: Şebnem Turhan, Ekonomim

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