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ANALYSIS: Can the Borsa Istanbul Rally Continue?

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Rate Cut Hopes Drive Momentum

Borsa Istanbul has extended its upward trend in recent weeks, signaling a shift in market expectations. The BIST-100 index has climbed above the 10,000 threshold, testing key psychological resistance levels. Leading the rally are banking stocks, which have become a primary driver of the index, supported by lower-than-expected inflation and growing speculation over an upcoming interest rate cut by the Central Bank.

June inflation came in at 1.37%, below forecasts. This could push the annual inflation rate down to the 35–36% range. With disinflationary signals now more pronounced, markets are increasingly pricing in a rate cut of between 300 and 500 basis points at the July Monetary Policy Committee (MPC) meeting—potentially bringing the policy rate down to around 42.5%.

How Do Rate Cuts Impact Bank Stocks?

The banking sector is among the first to benefit from rate cuts, as easing monetary conditions reduce funding costs and boost lending. On the back of this, the BIST Bank Index could move toward the 16,500–17,000 range. Leading private lenders such as İşbank, Akbank, Garanti BBVA, and Yapı Kredi have taken the spotlight in this surge.

Meanwhile, the industrial sector is showing a more cautious recovery. Holdings, insurers, and telecom companies—especially those with strong cash flow generation—are showing relative strength, supported by expectations of falling rates. Insurance stocks are buoyed by robust premium growth, while steady cash flows support valuations in telecom.

Earnings Season Could Challenge the Rally

Despite rising optimism, upcoming corporate earnings remain a key risk. First-quarter results were weak due to high borrowing costs, with many firms reporting either flat or negative net income. These pressures are expected to persist in Q2. While the benefits of rate cuts may only become visible in Q3 results, weak Q2 earnings could create near-term headwinds for the index.

If the BIST-100 approaches the 11,000 mark again, some profit-taking is likely. That said, if the Central Bank continues its easing cycle into year-end, the broader trend may remain upward. A more sustainable market recovery, however, may not materialize until 2026—when political uncertainty is expected to ease and foreign investor interest improves.

Why Are Capital Increases on the Rise?

Many listed companies are pursuing rights issues to strengthen their capital base amid elevated financing costs. This trend is particularly evident among sports clubs and highly leveraged firms. While capital increases can put short-term pressure on stock prices—especially in shallow markets—they are seen as positive for long-term balance sheet health.

In paid capital increases, existing shareholders must inject new equity to maintain their stakes, which adds to short-term volatility. Still, this route provides a viable solution for companies aiming to reduce debt burdens and improve liquidity over time.

Will Foreign Investors Stick Around?

Although foreign inflows into Turkish equities and bonds have picked up slightly in recent weeks, they remain short-term and opportunistic. Lasting foreign interest requires clearer signs of political and economic stability.

The summer lull in political tensions has offered markets a temporary breather. However, this calm may end by September, when postponed party congresses and ongoing judicial proceedings could reignite risk perceptions.

Sector Highlights and Performance Triggers

  • Banking: Remains the leading sector, driven by expected rate cuts and potential credit expansion. However, any lack of lending momentum could limit sustainability.

  • SMEs & Real Sector: Persistent cash flow issues remain unresolved. Without improved credit access, growth expectations may stay muted, affecting the stock market indirectly.

  • Index Composition: Calls are growing to revisit the BIST-30/50/100 membership criteria to curb speculative movements and prioritize long-term fundamentals.

  • Gold & FX: Gold remains a safe haven, supported by strong macro trends. In contrast, a saturated view on FX may elevate currency volatility in the near term.

  • Bond Market: Positive analyst reports by foreign investment banks on Turkish bonds may push yields lower, supporting equity valuations further.

Where Is the Index Headed Next?

Markets are eyeing a potential retest of the 11,000 level ahead of the July MPC meeting. However, the durability of this level will depend heavily on the quality of second-quarter earnings. Beyond banking, sectors like insurance, telecom, and retail continue to display cautious optimism.

Globally, a synchronized rate-cutting cycle across central banks could support flows into emerging markets. But the extent of this benefit for Turkey hinges on domestic political and macroeconomic developments.

By staff writer Hermes Bond

Key upcoming drivers: July MPC decision, inflation trajectory, corporate earnings season, and September’s political calendar.

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