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MARKET ANALYSIS | Can Borsa Istanbul Rebound After Sharp Sell-Off?

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Uncertainty Grips Markets Amid Aggressive Selling Pressure

On May 16, 2025, Borsa Istanbul experienced a sharp wave of selling that pushed the BIST-100 Index just above the critical 9,500-point support level. While market participants continue to debate whether systemic factors were behind the sell-off, the prevailing consensus is that high-frequency algorithmic trading played a major role. Adding to the pressure, U.S. retail sales data came in below expectations, leading to increased hopes of a rate cut by the Federal Reserve and a 10-basis-point drop in global bond yields. Despite these tailwinds, Turkish investors remained cautious, with risk premiums falling and the currency holding relatively stable.

High-Frequency Trades Weigh on Index Heavyweights

Foreign investors reportedly offloaded a net TRY 16 billion in equities over three days, focusing on major index stocks such as Anadolu Efes, Arçelik, Asor, Doğuş Otomotiv, Ford Otosan, Garanti Bank, Koç Holding, Sasa, Torunlar, and Vestel. These names faced the brunt of the selling pressure.

In contrast, a handful of large-cap stocks, including Çimsa and Emlak GYO, closed the day in positive territory, demonstrating relative resilience amid the downturn.

No Spike in Systemic Risk Indicators

Despite the heavy volume of the sell-off, systemic risk indicators remained stable. Turkey’s Credit Default Swap (CDS) premiums continued to decline in line with other emerging markets. No red flags were observed in long-term bond yields or currency markets. Interestingly, after over $10 billion in foreign outflows, there are signs of renewed foreign interest in both Turkish stocks and bonds, indicating that the market is still searching for a near-term equilibrium.

Index in Consolidation Zone Between 9,000–11,000

Analysts note that the index is currently consolidating between 9,000 and 11,000 points and expect sideways movement within this range to continue. For the index to sustainably break above the 10,000 level, a drop in long-term bond yields from 34% to 30% is seen as a necessary condition. In such a scenario, banking sector stocks are expected to outperform. While the banking index has already fallen around 25%, many analysts now see this as a potential buying opportunity for value investors.

High Inflation vs. Real Yields and Investor Sentiment

Official data puts annual inflation at 39%, while the Central Bank’s policy rate remains elevated at 49%, offering positive real returns on Turkish lira-denominated assets. However, investors continue to show reluctance to shift into lira positions, citing a broader lack of confidence. The 13% year-to-date increase in the exchange rate basket is seen not as a reflection of fundamentals, but of investor psychology and risk aversion.

June Rate Decision in Focus

All eyes are now on the next Central Bank of Turkey (CBRT) policy meeting scheduled for June 19. While a rate cut is being discussed, much will depend on the May inflation print. Some market observers point to the narrowing reserve buffer as a reason for continued tight monetary policy. Temporary liquidity measures and macroprudential tools have kept overnight lira rates near 49%, helping maintain the lira’s appeal.

Earnings Season Delivers Mixed Signals

With Q1 2024 earnings season concluded, analysts observed that most corporate results fell short of expectations. Top-weighted sectors showed weaker-than-expected revenue and operational profitability, and only a limited number of firms reported strong net income. Analysts advise investors to maintain a defensive stance, especially since high funding costs are expected to weigh on corporate earnings in Q2 and Q3. Year-end index forecasts range between 11,000 and 14,000 points, though downward revisions to target prices may be on the horizon after the weak Q1 reports.

Bond Market and Fund Flows Shift Preferences

Recent volatility in the bond market has influenced investor preferences between money market funds and flexible bond-heavy funds. With limited upside seen in bond yields, short-term instruments containing fixed income elements are viewed more favorably. Fund managers are actively using the 10% government bond limit in money market funds, and a gradual loosening in policy is now being priced in. That said, political uncertainty and macro risks require balanced portfolio strategies.

Foreign Investors and Currency Demand Trends

In April, foreign investors were net buyers of $195 million in Borsa Istanbul equities, bringing total inflows (including structured products) to $79 million. Over the last 12 months, total net outflows stand at $2.5 billion, while year-to-date net inflows have reached $578 million.

Meanwhile, during the week of May 29, foreign-exchange deposits (FX accounts) excluding gold and adjusted for parity effects declined by $802 million. Of this, $504 million came from households and $298 million from corporations.

CBRT Reserves and Capital Inflows in Focus

If another wave of currency volatility occurs, the Central Bank’s reserves may be insufficient to cushion the impact. With the stock of FX-protected deposits (KKM) now below $20 billion, the biggest source of recent reserve accumulation has been exhausted. Future reserve increases will likely depend on renewed foreign capital inflows. However, current weakness in investor perception could limit portfolio flows in the short term.

Source: Paraanaliz.com

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