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Hot Money Returns: Foreign Investors Double Down on Turkish Assets, Gold Boosts Reserves

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The latest weekly funds flow report ending December 19 paints a mixed but intriguing picture for the Turkish economy. While foreign investors are showing renewed interest, the underlying strength of central bank reserves is significantly influenced by gold price movements.

1. Foreign Investors Signal Return to Turkish Markets

International capital is making a notable comeback, with significant inflows into both debt and equity markets:

  • Government Bonds (DİBS): Foreigners purchased approximately $203 million in local government bonds, pushing the total stock to $18 billion.

  • Equities: A substantial $355 million inflow into the stock market was observed, with the total stock value surpassing $33.5 billion.

  • Eurobonds: Approximately $428 million in Turkish Treasury Eurobonds were also acquired.

2. Reserves Get a “Gold Boost” While Underlying Strength Varies

 

Gross reserves saw a modest increase of $1.5 billion, reaching $192.3 billion. Net reserves rose by $0.8 billion to $80.4 billion. However, a deeper dive into “Net Reserves Excluding Swaps” reveals a more nuanced story:

  • Swap-Excluding Net Reserves: Increased by $0.55 billion (or $0.35 billion excluding gold price effects) to $66.7 billion. This is a positive trend, though still below the February 2025 peak of $71 billion.

  • Gold Price Impact: Crucially, a significant portion of the recent reserve growth stems from rising gold prices. While analytical balance data as of December 24 shows a $1.9 billion increase in swap-excluding reserves, a $3.2 billion positive impact from gold prices masks an underlying $1.3 billion decrease when gold’s effect is removed.

3. KKM Nears Its End

The controversial Currency Protected Deposits (KKM) scheme is in its final throes:

  • KKM accounts saw a weekly outflow of approximately $80 million (3.3 billion TL), reducing the total to 8.3 billion TL.

  • Since its peak in August 2023, the scheme has unwound by a staggering $136.8 billion (3.4 trillion TL), indicating its imminent closure.

4. Dollarization Remains Persistent

Despite efforts to de-dollarize, foreign currency deposits (DTH) continue to grow:

  • DTH Increase: DTHs rose by $479 million weekly, driven predominantly by corporate accounts.

  • Overall Dollarization: The combined share of DTH and KKM in total deposits currently stands at 38.9%. When investment funds are included, the overall dollarization rate remains stable at 41.8%, a stark contrast to the mid-2023 peak of 70%.

5. Credit Growth Accelerates

Loan growth shows signs of acceleration, potentially indicating increased economic activity:

  • Commercial Loans: The 13-week annualized growth rate for commercial loans rose from 26.2% to 27.6%.

  • Consumer Loans: Consumer loans saw a more significant jump, from 52.1% to 54.2%, suggesting robust consumer demand.

 

Source:  Gedik Invest

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