Borsa İstanbul Strategy for May: Upside Potential Narrowing as Geopolitical Risks Persist

Middle East tensions and energy supply fears remain at the center of market pricing

Geopolitical developments in the Middle East continued to shape global market pricing behavior throughout April, as investors closely monitored the ongoing confrontation between the United States and Iran. Concerns surrounding global energy supplies through the Strait of Hormuz remained a key source of market anxiety, while heightened volatility in oil prices encouraged a cautious tone across financial assets.

The possibility of a prolonged conflict and a diplomatic deadlock between the parties kept upside risks to global inflation alive through the energy channel, forcing investors to reassess expectations regarding the future path of monetary policy among major central banks.

The continuation of the US military presence in the region and the blockade around the Strait of Hormuz kept geopolitical risk perceptions elevated, maintaining pressure on global asset prices. At the same time, diplomatic contacts and reports suggesting that negotiation channels remained open supported market optimism and helped risk appetite partially recover during the month.

Nevertheless, uncertainty surrounding the ceasefire process and the sustainability of negotiations preserved fragile and volatile market conditions.

Central banks remain cautious amid inflation and geopolitical uncertainty

On the global monetary policy front, April was marked by a cautious stance among major central banks, particularly the Federal Reserve. The Fed kept its benchmark interest rate unchanged at 3.50%-3.75% during the April FOMC meeting, while the ECB, Bank of England, and Bank of Japan also left rates unchanged at 2.15%, 3.75%, and 0.75%, respectively.

Notably, the Fed’s statement revealed four dissenting votes for the first time in years, highlighting rising uncertainty linked to geopolitical developments in the Middle East. The central bank also acknowledged that the impact of the oil shock on the US economy remained more limited compared with Europe and Japan.

Fed officials continued emphasizing a data-dependent policy approach and underlined that geopolitical developments would be monitored closely. This communication strategy effectively pushed back expectations for near-term rate cuts.

Meanwhile, downside risks to growth remained dominant across Europe and Asia. Economic data from the Eurozone pointed to weak and fragile activity, supported by soft industrial production and external trade figures. In China, stimulus expectations and growth-supportive policy measures remained on the agenda, while Japan maintained its existing monetary policy framework without significant adjustments.

Overall, uncertainties and downside growth risks across advanced economies remained elevated.

Turkish markets focus on inflation outlook and Central Bank policy

Domestically, investors focused on the Central Bank of the Republic of Türkiye’s (CBRT) interest rate decision and its messaging regarding inflation.

The CBRT kept its policy rate unchanged at 37% during its April Monetary Policy Committee meeting, reaffirming its commitment to tight monetary policy. The bank emphasized that inflation expectations and underlying price dynamics would continue to be monitored carefully and signaled that additional tightening could be implemented if necessary.

S&P Global affirmed Türkiye’s sovereign credit rating at “BB-/B” with a “stable” outlook, while stressing that managing the energy price shock and rebuilding foreign reserves would remain critical for future rating upgrades.

Throughout April, geopolitical risks and fluctuations in energy prices remained central drivers of inflation expectations, while Turkish lira-denominated assets continued to display volatile performance closely tied to global risk appetite. Foreign investor flows and capital movements remained decisive for overall market performance.

Rate-cut expectations pushed to June and beyond

Following the CBRT’s decision to pause rate cuts in March and maintain rates unchanged again in April, expectations for monetary easing have shifted toward June and later meetings.

Global equity markets posted a broadly positive performance in April, recovering much of the losses seen in March amid improving sentiment linked to geopolitical developments. The BIST-100 Index hit a new all-time high in Turkish lira terms at 14,621.97 points on April 27 before ending the month up 12.91% at 14,442.56.

Sectoral divergence remained notable during the month. The Industrial Index rose 12.27%, while the Banking Index advanced 9.57%.

In May, developments surrounding US foreign policy, global trade tensions, and geopolitical risks are expected to remain the primary drivers of global risk appetite. Domestically, inflation data and the CBRT’s upcoming Inflation Report presentation will be closely watched.

Analysts expect the BIST-100 to remain volatile during May, depending largely on whether foreign investor interest returns amid expectations that the disinflation process will continue and rate cuts will eventually resume.

Should geopolitical risks ease, the medium- and long-term outlook could support gradual buying opportunities in Turkish equities.

Analysts maintain “BUY” recommendation despite lower upside

Against this backdrop, analysts maintain their 12-month BIST-100 target of 16,500 points and continue recommending a “BUY” stance, implying roughly 14% upside potential from current levels.

The MSCI Türkiye Index is currently trading at 8.62x 2026 estimated earnings and 0.99x price-to-book value, representing discounts of 29% and 52%, respectively, compared with the MSCI Emerging Markets Index.

Profit forecasts revised lower after Iran conflict

Analysts revised 2026 earnings expectations downward following the Iran conflict, though strong earnings growth is still expected overall.

Banks are projected to face around a 12% reduction in earnings forecasts, while aviation-focused companies could see declines of up to 50%. Other non-financial companies are expected to post mid-single-digit declines, whereas refiners such as Tüpraş are projected to benefit significantly.

Overall, 2026 earnings forecasts have been revised downward by roughly 7%. Analysts still expect profit growth of 46% for banks and 105% for non-financial companies. Firms with functional currencies in US dollars or euros, particularly airlines, are expected to experience a 15% contraction due to downward revisions.

War-period valuations and key risks

Analysts expect earnings momentum to weaken in the second quarter of 2026 due to war-related effects, before recovering in the second half of the year.

Turkish equities are currently estimated to trade at 8.1x forward earnings adjusted for one-year-ahead inflation. The revised 12-month BIST-100 target of 16,300 points implies approximately 20% upside from current levels.

Key downside risks include:

• A longer-than-expected Iran conflict
• Higher-than-expected inflation
• Weaker-than-expected foreign capital inflows
• High short FX positions among corporates
• Domestic political developments

IMPORTANT DISCLOSURE:  The strategy reports PATurkey collated for this article were published between 4-6 May

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