BIST 100 Plunges on Fund Liquidations

The Turkish BIST 100 index sank over 8% to 13,300 since testing three-month highs at 14,500 in early September, despite a lower lira, as a run on investment funds spread into equity prices of major Turkish companies. Leading Istanbul fund manager Pusula Portfoy announced that some of its funds could not meet redemption requests, leading investors across the country to liquidate positions in similar asset classes. The run triggered a crisis on funds that had been accused artificially inflating the NAVs through co-ordinated buying of assets with limited outstanding shares, driving authorities to start the liquidation process of major firms in the Turkish financial system, including Hedef, Tera, Atlas, A1, and Pardus Portfoy. The Turkish central bank had held interest rates unchanged this month but eased collateral conditions on short-term funding markets to prop-up liquidity in financial stress.

The BIST 100 stock index were above 14,270 in April, trading near record highs and extending the strong momentum since the start of the year despite the mixed macroeconomic backdrop for equities. Shares of Aselsan, which are by far the heaviest part of the index, topped TRY400 for the first time on record this month to double in value in the only the last four months. The company tracked the rest of the defense sector in NATO amid the constant threat of escalation to the conflicts in the Middle East and Ukraine. Meanwhile, banks were also higher, outperforming other sectors as Turkish investors commonly turn to banks as a shield to high inflation and currency depreciation in the economy. The TCMB held rates unchanged to consolidate the hawkish pivot following the surge in energy prices this year, but the halt in reverse-repo auctions continued to lift overnight rates in the financial system, preventing a further boost for equities.

The Turkish lira weakened to a record low 44 per USD in March, as the Central Bank of Turkey was forced to intervene in foreign exchange markets to maintain the predictable devaluation pace amid the outbreak of a war in the Middle East. Traders noted that the central bank sold more than $8 billion in foreign exchange since the start of the month to prevent a slide in the lira as the global pivot away from riskier currencies drove the dollar to surge. Markets sold liras despite expectations that the fresh inflationary risks from war in the region, especially due to a surge in energy prices, will drive the central bank to halt its rate-cutting cycle. Additionally, the TCMB raised its overnight reference rate by 300bps to almost 40% to prevent a sharper lira selloff. On top of that, confidence on the suspension of the rate-cutting cycle was attributed to a bounce in the headline inflation rate during February to 31.5%, its first increase since September.