Hot money returns to Turkish financial markets

Once a haven for carry trade  and EM equity investments, foreign interest in Turkish financial markets dried up since 2018, thanks to Erdogan’s irrational insistence to keep rates low.  Successive finance ministers and Central Bank governors under his direction gradually closed to door to foreign financial investment. At some point, the official mantra of the economic policy became “We only want quality money”, without explaining WHY any long term investor would visit the country where Law and Order is only the title of a popular TV series.


Only Heavens knows WHY after his May election victory Erdogan suddenly shifted course, embracing orthodoxy wholeheartedly, but the appointments of Mr. Cevdet Yilmaz as VP, Mr. Mehmet Simsek as the economy czar and Mrs. Gaye Hafize Erkan as Central Bank governor began turning the tide of the opinion for Turkish financial assets.

Capital flows from foreigners into Turkish stocks and bonds are set to turn positive in 2023 for the first time in six years, thanks to favorable sentiment following Turkey’s pivot in June toward higher interest rates and a more orthodox monetary policy.

Foreign investors bought a net $528.6 million in Turkish equities and bonds last week, taking cumulative inflows this year to $1.1 billion, according to central bank data. The last year foreigners were net buyers of Turkish assets was in 2017” heralded Bloomberg.

“International investors are dipping a toe into Turkey’s long-abandoned debt market as sweeping economic reforms and a surge in yields gradually increase the appeal of the country’s bonds.

The trickle of new investments is the latest sign of how the broad economic policy overhaul that began after President Recep Tayyip Erdoğan’s re-election in May has piqued investor interest in Turkish assets, including lira-denominated debt that they have shunned for years”, chimed in Financial Times.

Why are funds buying now?

For East Capital’s Emre Akcakmak, foreign interest may increase after the first quarter of next year, fueled by relief from municipal elections, the start of the tourism season, expected investments from the Gulf countries and the growing likelihood of Federal Reserve’s rate cuts.

“Things are changing quite quickly,” said Paul Greer emerging market debt fund manager at Fidelity International, adding that Turkey’s lira and local currency bonds are “flavour of the month”.

Carlos Carranza, portfolio manager at Allianz Global Investors, said the new monetary and fiscal policies were sending “positive signals”. He added: “Turkey is fighting inflation, allowing the central bank to be independent and hike rates and working on tackling the fiscal deterioration.”

“International investors who have been practically absent from this market are beginning to cover their underweight positions” said Sergei Strigo, co-head of emerging markets fixed income at Amundi.


Will foreign interest last?

According to a.m. Financial Times article, Turkey needs to do more, not only in terms of economic policy, but also in terms of aligning her  foreign policy with US and EU, to regain her status as a reliable destination for foreign investment:

Some investors say rising tensions between Turkey and its western allies are also holding back larger inflows of new investments.


The US has strongly backed Israel since the October 7 attack by Hamas. But in contrast, Erdoğan has accused Israel of committing “war crimes” and said Hamas, which the US deems a terrorist organisation, was a “liberation” movement.


The US warned last week that it had “profound concerns” that Hamas was accessing international funding through Turkey, while Washington has also expressed frustration over the rise in Turkish exports of goods it says are vital to Russia’s war machine.


“People are sniffing around and we’ve seen some inflows but you’ve got to be really bullish on Turkey to buy now,” said Timothy Ash, senior emerging market sovereign strategist at BlueBay Asset Management.


Follow our  English language YouTube videos  @ REAL TURKEY:

And content at Twitter: @AtillaEng

Facebook:  Real Turkey Channel:




Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.