Borsa Istanbul 2026 strategy: More upside around the corner

Summary:

Against the backdrop of evolving global and domestic macroeconomic conditions, Borsa Istanbul is entering a period in which supportive and constraining forces are likely to coexist. While medium-term strategic expectations remain intact, the timing and dominance of these factors may also generate tactical trading opportunities as investor risk appetite fluctuates.

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Supportive Factors Remain in Place

On the positive side, foreign investor positioning in Turkish equities remains historically low, leaving room for potential inflows should sentiment improve. Valuations across Borsa Istanbul continue to trade at a notable discount both to their historical averages and to international peers, reinforcing the relative attractiveness of equities on a medium-term horizon.

Another supportive element is the significant decline in equity weightings within domestic retail portfolios over the past two years. Elevated deposit rates and the strong performance of gold amid global uncertainty have drawn capital away from equities, creating latent reallocation potential should financial conditions ease.

From a corporate perspective, access to foreign currency liquidity has improved for companies with FX liabilities, while currency-related risks remain relatively contained. Export-oriented firms stand to benefit from infrastructure and defense-focused fiscal stimulus packages being rolled out across Europe, both through direct demand and secondary spillover effects.

Global monetary conditions also offer a more constructive backdrop. Rate cuts by the Federal Reserve and the Bank of England, combined with expectations that the European Central Bank will refrain from further tightening, are helping stabilize global liquidity perceptions. At the same time, subdued commodity prices and a broadly benign outlook are easing cost pressures.

Expectations of further credit rating upgrades could reinforce foreign investor confidence, while the possibility of limited regulatory easing—such as partial relaxation of swap restrictions—may enhance the appeal of domestic financial markets. As high deposit rates begin to trend lower, portfolio rebalancing dynamics could come into play relatively quickly. Longer-term technical indicators also suggest the potential for supportive signals ahead.

Downside Risks Still Prominent

Despite these tailwinds, several downside risks remain firmly on the radar. Resilient domestic demand and a slower-than-expected improvement in inflation dynamics raise the likelihood that financial conditions could remain tighter for longer than currently anticipated.

Renewed geopolitical tensions at the global level could push shipping and freight costs higher once again, complicating inflation and trade dynamics. Meanwhile, expectations that the Bank of Japan may proceed with a limited number of rate hikes introduce an additional source of global market volatility.

In the first half of the year in particular, investors may continue to question whether equity return expectations sufficiently compensate for risk, especially when compared with elevated yields on TL deposits and bonds. Ongoing credit constraints also heighten the risk of financial stress among companies with high leverage, elevated short-term debt ratios, heavy inventory burdens, and significant working capital needs—particularly those exposed to a slowdown in targeted consumer lending.

On the fiscal side, recently announced austerity measures and the prospect of additional tax burdens could weigh on demand and corporate profitability. A steady pipeline of initial public offerings continues to exert pricing pressure on the index, while economic activity in Europe—led by Germany—still points to contraction in manufacturing and construction, posing challenges for exporters.

From Broad Rally to Prolonged Consolidation

The BIST-100 delivered strong, broad-based gains between 2022 and 2024, supported by a low-interest-rate, high-inflation environment that lifted nearly all sectors, aside from brief periods of volatility. During this phase, stock and sector selection played a diminished role.

In contrast, 2025 has been characterized by consolidation. Investors increasingly viewed risk-free yields—both in dollar terms and in real terms versus inflation—as the most attractive option. As a result, the index struggled to sustain levels above the $250 mark on a USD basis, while valuation discounts relative to global peers widened further.

Equity Interest Likely to Pick Up in the Second Half

Looking ahead, the balance of positive and negative factors suggests that the appeal of high interest rates will persist in the first half of the year. However, once interest income is realized and repricing dynamics play out, equity markets could see renewed interest in the second half.

In this context, stock selection is expected to remain critical through the first half of 2026, before giving way to a more broad-based market move later in the year.

Sectors and Themes to Watch

Banks stand out as a key beneficiary of normalization trends and potential foreign capital inflows, particularly those with deep order books and high trading liquidity capable of absorbing larger flows.

The defense sector continues to attract attention amid persistent geopolitical uncertainty and rising European demand, with expectations of stronger investment pipelines and higher future valuations. Meanwhile, construction, building materials, white goods, and furniture producers could benefit from declining loan rates domestically and, if global conditions allow, from demand in neighboring markets.

Model portfolio stocks that remain undervalued relative to both the broader index and international peers may also come to the fore, particularly as comparisons with deposit returns become more favorable.

Index Targets and Scenarios

Under the base case, incorporating domestic inflation trends, GDP growth, and valuation metrics, the BIST-100 points toward levels around 16,000. Credit rating improvements and valuation discounts versus global peers could support this trajectory, although weaker corporate earnings momentum in the first half suggests that meaningful re-rating may be concentrated in the latter part of the year.

In a more optimistic scenario—where corporate profitability proves more resilient than expected and global capital flows turn supportive—the index could reach as high as 18,000 by year-end.

Source:  GCM Invest

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