Istanbul Stock Exchange (IMKB) Rallies up to 70,000 points Before Elections

Just a month away from general elections in Turkey, the İstanbul Stock Exchange (IMKB) rallied up to 70,000 points as of Tuesday, marking a five-month high.

Experts expect this will gain momentum and reach record highs after the elections. Vice manager of Alan Securities, Inc., Fatih Demir, says that he expects new records for the İstanbul bourse in the days ahead. He notes the recent surge in the stock market is the result of a combination of internal and external factors. According to Demir the first reason investors find it attractive to invest in the IMKB is a fall in global commodity prices, which drives down input costs of Turkish firms, whose production depends on basic material imports, thus increasing their profitability. Second are early signs of the continuous momentum of high profits of Turkish banks, which were highly critical of a recent decision by the Central Bank of Turkey to increase required reserve ratios. Expectations of the profitability of banks are enticing investors to purchase shares in them, forcing the index upward.

The İstanbul Stock Exchange benchmark index has embarked on a slow yet steady rise as investors are expecting political stability to continue through general elections to be held in June, experts say. Moreover, the common view that rising oil prices will not be permanent and that it will return back to pre-unrest levels seems to support the comments of experts

Demir also notes that positive expectations by investors, especially foreign investors, about the upcoming elections are also responsible for the latest increases in the İstanbul bourse. He says that political stability is a key factor and that investors do not foresee any major policy shifts after the elections. Therefore, he adds, the bourse could see new highs depending on the outcome of the elections.

Strategist Selim Işıklar from Info Investment says that there is a difference between to the pre-election period of 2007 and the upcoming general elections. Işıklar says going into the general elections in 2007 the main buyers at the IMKB were foreign investors. He believes the current situation shows that foreign investors are not fully in the game yet and he expects stronger entries from foreigners to the bourse by the end of May or the beginning of June at the latest. This is in conjunction with his earlier analyses where he predicted similar foreign investor behavior, he says.

Işıklar notes that while overseas stock markets are still struggling the İstanbul bourse is sailing smoothly in positive territory. He believes there are two main reasons for such a trend. First, the polls are consistently saying that the ruling Justice and Development Party (AK Party) will retain a strong grip on power after the elections. This is important in the sense that in the eyes of investors, whether foreign or domestic, there will be no major policy shifts. Second, there is an expectation of a credit rating increase for Turkey by international credit agencies. “Even though it is just an expectation at this point this still plays a factor in investors’ decisions” Işıklar says.

Işıklar suggests the only downside would be concerns over a decrease in the profitability of Turkish banks and the possible money tightening policies of certain countries abroad. However, Işıklar does not believe these factors will undermine the strong surge in the Istanbul stock market. “Signs from the Turkish banks are mixed and could not be bad after all, and money tightening policy expectations are still premature,” he said.

Commenting to Today’s Zaman on a previous rally in the bourse about a month ago, Çankaya University economics professor Üstün Dikeç said that he could not remember where there was such a strong upward trend in the stock market before elections in the past. He had also said foreign investors do not act on short-term decisions. Thus, the strong participation of foreign investors ahead of these elections indicates a long-term trust for Turkey.

“Let us not forget the role of political stability and its effect on gaining the trust of foreign investors. The same ruling party, the AK Party, has been in power for almost nine years now, and their policies have been nothing but transparent and consistent throughout. Moreover, the current situation and polls show that the same party will win in the upcoming elections. This, in turn, means that we will not observe major shifts from such policies. When it comes to investment decision-making, this is a crucial factor for foreign investors and we will therefore see a strong inflow of investment in the days ahead,” Dikeç said.

04 May 2011

SOURCE: TODAYS ZAMAN