A brief update about Istanbul Stock Exchange and position of banking stocks

The exchange rate is rising, the interest rate is rising and the stock exchange is rising. They say something is strange in this picture.  But when you take into consideration “The stock market is rising because Turkey has achieved the average of developing countries in dollar terms this year only” the picture becomes more understandable.

Turkey had a portfolio entry of US$ 1.5 billion from foreign investors last year whereas it enjoys an amount of US$ 9.8 billion this year. We can still observe low interest rates abroad and consequently a look out for profitable yields. This search turns out to be good for developing markets. Markets have started to price FED and ECB expectations have begun to price since September. The internal news flow however, which coincided with the same period, discriminated us from others, in a negative manner.

Experts say it would be wise to look at the past 2 years in evaluating the index. Everybody said that the stock market had resisted well in 2015 and 2016 while TL devaluated. Last year, the stock market had 9 percent premium on TL basis with 10 percent loss on dollar basis.

In the same year, the developing countries showed a positive performance of 8.6 percent on average, in dollar terms. A similar situation was observed in 2015, as well. It was under sales pressure on dollar basis. This year BIST is still 40 percent behind in dollar terms.

Experts say however the stock market has still not been able to close the gap in 2015 and 2016 and add it has only caught the average of the developing markets this year and it has a long way to go considering the past depreciation in TL. In 2018 it is likely that a clearer breakdown of micro-basis, especially on the stock side will be seen.

In a world where geopolitical risks persist and where higher interest rates are now spoken, including the Fed, all negative expectations are reflected in prices.

In 2018 if the risks unique to Turkey work out positively on the contrary to expectations, then this pricing situation will be reversed.

Looking at the market it is possible to see that macro and micro risks are rather priced in banking stocks more than others. That seems to a good reason why banking stocks are lagging behind both the index and the industrial stocks. If horrific scenarios do not come true next year, the index may cover considerable distance with the contribution of the positive activity of banking stocks.

In fact looking at the well-performing stocks this year, it is easy to see that they have been able to go as far as the index. It is noteworthy to remember on the other hand that the share of the banks is close to 30 percent in the total index. Therefore an improvement of risk perception would reflect much faster on the other side.