BlackRock Increases Exposure to Turkish Stocks as Inflation Slows and Valuations Attract

Summary:

One of BlackRock’s top-performing frontier-market funds has raised its exposure to Turkish equities to nearly 10% of its portfolio, making Türkiye its third-largest country allocation. Fund managers cite slowing inflation, steady interest-rate cuts and attractive valuations — particularly in banking — as factors supporting a more constructive view on Turkish markets.

Turkish equities have become one of the largest holdings in a high-performing BlackRock fund, according to Bloomberg, marking a notable shift after years of limited foreign investor interest.

The Frontiers Investment Trust Plc, managed by BlackRock and ranked among the top 2% of its peers over the past five years, has lifted Türkiye’s share of assets to almost 10%. A year ago, the fund had minimal exposure to domestically listed Turkish stocks, with Canadian miner Eldorado Gold Corp. serving as its main Türkiye-linked investment.

Türkiye now ranks as the fund’s third-largest allocation, behind Saudi Arabia and the United Arab Emirates.

Inflation and Rate Cuts Improve Equity Backdrop

Co-managers Samuel Vecht and Emily Fletcher say easing inflation and a gradual interest-rate cutting cycle are creating conditions for stronger equity performance in Türkiye after years of weak returns.

“We see opportunity there, which is why you can see a large allocation in our portfolio,” Fletcher told Bloomberg. “The size of the position is not something we are completely in love with, but as long as the dynamics remain favourable, we will maintain that exposure.”

Foreign investors had largely avoided Turkish equities in recent years due to persistently high interest rates and sharp depreciation of the lira, which weighed on consumption and earnings visibility.

However, sentiment has begun to improve. This month, the Borsa Istanbul 100 Index has risen 15.2% in dollar terms, outperforming most emerging-market peers, as recent inflation and growth data suggested the economy is stabilising after a prolonged period of policy volatility.

Credit Outlook and Bank Valuations Support Interest

Türkiye’s improving macro backdrop received an additional boost last week when Fitch Ratings revised the country’s sovereign credit outlook to “positive,” citing rising foreign-exchange reserves and continued monetary tightening.

The fund’s Turkish holdings include Akbank, whose shares have climbed 43% since mid-October, and private hospital operator MLP Sağlık Hizmetleri, which has gained 38% over the same period.

Vecht said the underlying quality of Turkish companies is often underestimated.

“The quality of companies available to buy in Türkiye is generally quite high,” he said. “In many cases, management teams have been tested through very difficult economic — and occasionally political — conditions over the years.”

Valuations are another key attraction, particularly in the banking sector. Vecht noted that Turkish banks appear “very attractive on a global basis” when compared on price-to-earnings metrics.

Global Banks See Carry Trade Gains Extending Into 2026, With Türkiye Among Top Picks

Key Risk: Can Disinflation Be Sustained?

Fletcher said the central question for investors is whether Türkiye’s disinflation process can be maintained. After missing its end-2025 inflation target of 24%, the central bank has set a new target of 16% for end-2026 and delivered a smaller-than-expected 100 basis point rate cut at its most recent meeting.

“If they are able to pursue that path successfully, then there is a huge valuation discount relative to what we see in more developed markets,” Fletcher said. “That creates the potential for some genuinely interesting opportunities.”

For now, BlackRock’s increased exposure reflects cautious optimism rather than a full-scale return by foreign investors — but it signals that Türkiye is once again moving onto global portfolio managers’ radar.

Source: Bloomberg
Author: WS37

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