Zeynel Balcı: “A Market That Can’t Rise Will Fall”

Despite foreign buying over the past five weeks, the Borsa Istanbul (BIST) 100 Index has failed to gain significant momentum. Local investor participation remains weak, and foreign inflows have yet to reach levels strong enough to support a lasting rally. After nearly 10 months of decline, the market appears undervalued but lacks the positive sentiment or strong expectations needed to spark a sustainable recovery.

Volatile Conditions Amid Heavy News Flow

Markets remain directionless as they react to a steady stream of economic and political developments. The BIST 100 Index saw a brief rebound following recent selloffs, supported by perceptions of undervaluation and global market rallies. However, the index failed to break through key resistance levels, prompting investors to lock in quick gains. This pattern reflects the familiar market axiom: “a market that can’t rise will fall.”

Despite periodic rebounds at support levels, the broader downtrend has persisted for almost a year. While low valuations are limiting further downside, the lack of strong economic or earnings-based catalysts prevents any meaningful upside. Even the perception of undervaluation may be questionable at this point.

Rising Price-to-Earnings Ratios Signal Risk

Third-quarter earnings for 2025 have been underwhelming, with many companies posting either weak profits or outright losses. As a result, even with falling share prices, the BIST 100’s price-to-earnings (P/E) ratio has climbed. Currently, the index trades above 12x earnings—well above the 6-8x range seen at the end of 2024 and the sub-6 levels of 2023.

While P/E is not the only valuation metric, it is a crucial one. From this perspective, it may be more accurate to describe the market as “unrewarding” rather than cheap. True value isn’t just about price—it must be backed by healthy balance sheets. As the Turkish saying goes, “cheap meat makes a bland stew.”

The poor earnings performance can be attributed to two main factors: inflation accounting and a slowing economic outlook. On May 30, Turkey is expected to release its Q1 GDP figures. Analysts anticipate a continued slowdown driven largely by high interest rates, which have shifted investor preferences away from equities toward safer, fixed-income assets.

No Rate Cuts in Sight — Inflation Still the Key

The Central Bank of Turkey’s (CBRT) latest inflation report, presented on May 22, offered no changes to its year-end forecast of 24%. Governor Fatih Karahan noted that preliminary May data shows inflation slowing compared to April. While this hints at a more favorable inflation outlook, any expectations for an imminent rate cut remain premature.

Half of Borsa Istanbul-Listed Companies Reported Losses in Q1 2025

There is speculation in the market, with U.S. investment bank Morgan Stanley forecasting a rate cut as early as June. However, most analysts agree that only sustained disinflation would justify monetary easing—a lesson Turkey has learned the hard way in past decades.

Gold, Housing, and Currency Trends Diverge

While interest-bearing instruments have dominated investor sentiment, gold has emerged as the top-performing asset class. International gains in gold prices, coupled with the depreciation of the Turkish lira, have delivered strong real returns for local investors. This trend continues.

Housing, on the other hand, has lagged. Despite some signs of a pickup in sales, price growth has trailed inflation. According to CBRT data, Turkey’s housing price index rose by 32.9% year-over-year—but posted a real decline of 3.6%.

In the currency space, those holding euros have outperformed, as the euro has strengthened globally. The shift from FX to lira deposits also continues, driven by high domestic interest rates and improving confidence in monetary policy.

Foreign Inflows Rise, But BIST Still Stagnant

Foreign interest in Turkish assets remains strong. According to CBRT data for the week ending May 16, foreign investors bought $245 million in equities and $1.875 billion in government bonds. Over the last five weeks, cumulative foreign equity inflows reached $882 million, while bond inflows exceeded $2.8 billion in just two weeks.

Despite this, the BIST 100 Index has failed to build upward momentum, largely due to weak domestic investor participation and the insufficient scale of foreign inflows.

Meanwhile, CBRT reserves continue to recover. Gross reserves rose by $1.3 billion to $145.7 billion in the same week, while net reserves excluding swaps climbed from $18.1 billion to $20.4 billion. Over the last two weeks, total reserve gains exceeded $7 billion. Domestic FX deposits fell by $1.5 billion to $191 billion, indicating a continued transition to lira-based savings.

Technical Outlook: Resistance Still Holding

The BIST 100 Index’s attempts to rally have repeatedly met resistance. Key support levels lie at 9,300 and the 9,050–9,100 range. On the upside, resistance is seen at 9,550 and 9,780–9,830. While rebound attempts may occur at support zones, the chances of a sustained rally appear slim for now.

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