Turkey Equity Strategy: Winners and Losers

Resilience Holds Despite Geopolitical Headwinds

Turkish equities have outperformed broader emerging markets in 2026, showing resilience despite geopolitical tensions and rising energy costs. However, elevated interest rates and external risks are driving sector divergence, with defense and energy stocks leading gains while banks remain under pressure.

Borsa Istanbul Outperforms Emerging Markets

MSCI Turkey Index has risen 27.5% year-to-date, significantly outperforming the broader emerging markets benchmark, which gained 15%.

Foreign inflows were strong in the first two months of the year but reversed sharply in March following the escalation of the Iran–US–Israel conflict and rising oil prices. In April, a ceasefire prompted renewed foreign buying, supporting market recovery.

Bond Market Stress Signals Tight Financial Conditions

Following a de facto 300 basis-point tightening by the Central Bank of the Republic of Turkey, yields remain elevated:

• 2-year government bonds: ~40%
• 10-year government bonds: ~33%

Foreign outflows from the bond market have been a key driver of rising yields, indicating persistent risk aversion despite easing geopolitical tensions.

Oil Prices Pose Macro Risks

Assuming an average oil price of $85 per barrel in 2026, the expected macroeconomic impact includes:

• Inflation: +1.9 percentage points
• Current account deficit: +0.9 percentage points
• GDP growth: -0.8 percentage points
• Budget deficit: +0.5 percentage points

Elevated energy costs continue to weigh on Turkey’s macro outlook.

Banking Sector Under Pressure, But Opportunities Emerging

Banks have been among the hardest-hit sectors due to higher interest rates and deteriorating global risk sentiment.

BIST Banking Index (XBANK) has declined 14% from its late-February peak.

Despite near-term challenges, analysts view the selloff as a potential entry point, particularly ahead of a future rate-cut cycle.

Defense and Energy Stocks Lead the Market

Strong performance has been concentrated in defense, energy, and commodity-linked sectors:

• Aselsan continues to outperform, building on strong 2025 gains
• Tüpraş
• Petkim

Fertilizers, electricity, steel, healthcare, and food retail have also delivered solid returns.

Supply constraints in energy-related commodities could further support prices in the coming months.

Export Tax Cuts Lift Borsa Istanbul Outlook: Exporters Set to Lead Market Gains

Industrial and Energy Growth Stories Remain Intact

Top picks highlighted by analysts include:

• Aselsan
• Astor Enerji
• Tüpraş

Tüpraş earnings forecasts have been revised significantly higher, reflecting continued tightness in refined product markets.

In the energy space:

• Aksa Enerji plans to expand capacity from 3GW to 5GW by 2028
• Enerjisa benefits from inflation-linked revenues

Currency Dynamics Support Exporters

The Turkish lira’s real valuation trends may provide support to exporters and industrial firms.

Lower inflation is also expected to reduce monetary losses for companies with strong equity bases.

Rate Cuts Expected, But Delayed

Forecasts indicate:

• 2026 inflation: 27.5%
• 2027 inflation: 21%
• Policy rate (end-2026): 34%
• Policy rate (end-2027): 24%

Banks and real estate investment trusts are expected to benefit most from the eventual rate-cut cycle.

Key Risks Remain Elevated

Major downside risks include:

• Prolonged geopolitical tensions
• Sustained high oil prices
• Domestic political uncertainty

These factors could delay rate cuts or even trigger renewed tightening.

Can a stock rise 40,000% in five years? Yes, but only in Turkey

Conclusion: Selectivity Is Key

Borsa Istanbul’s resilience masks growing sector divergence. Defense, energy, and export-oriented industrials remain the primary beneficiaries of current dynamics, while banks face near-term pressure but offer medium-term upside potential tied to monetary easing.

Excerpt from Is Invest equity strategy report

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