After the Hamas attacks that began on October 7, the Istanbul Stock Exchange index fell by 15.7 percent until November 1, 2023, from 8,496 points to 7,319 points, and the optimism that began near the end of the session on November 1 continues. . The Istanbul Stock Exchange, which began its rise 1.5 hours before the close of the session on November 1 and continued yesterday, rose by 1.7 percent to 7,663 points. The stock market rose 4.7 percent compared to its lowest level on November 1. So what happened that the stock market started to rise after a 3-week decline? What is happening on the Istanbul Stock Exchange? To answer these questions, we must look at the factors that affect both the Turkish economy and the stock market, both negatively and positively.
attention! Only the stock market fell
Let us first take a look at the developments that led to the index losing 15.7 percent of its value. There is no doubt that the war between Israel and Hamas, which began after the attacks on Israel from Gaza, takes place primarily in Palestine, with which Turkey has historical and cultural ties. The possibility of the war spreading to the region still threatens the countries of the region, especially Turkey, and remains a risk factor. Naturally, this makes the markets nervous. But let us draw attention to this; The most affected investment instrument in Turkey since the beginning of the war was the stock market. Bond interest rates, USD/TRY, are stagnant. Credit default swaps, which reflect Turkey’s risk premium, have increased, and that’s all. If this war is seen as a major risk to Turkey, then other investment vehicles should be negatively affected as well. So why did the stock market fall on its own? To explain this situation, we have to look back.
Expectations have been destroyed
While the stock market nearly doubled after the election, the greatest expectation was that foreigners, whose share of the stock market fell from 70% to 27%, would return with a change in economic policies and a return to rational policies. The stock market was negatively affected because the war and Turkey’s position on the war, which disturbed the West, reduced this expectation.
The second issue that has a worse impact on stock markets is the side effects of the new economic policy. What does the new policy envisage? Interest rates are rising, loans are stalled, and the growth rate is expected to decline. On the one hand, this increases interest rates on deposits and makes them an alternative investment instrument to the stock market. On the other hand, although this has not happened yet, the reduction in loans is expected to negatively impact the company’s growth and reduce profitability. Finally, let us point out that high interest rates deter some investors who buy on credit in the stock market and keep them away from credit transactions. We know that investors who currently trade credit in the stock market take out loans at an annual rate of 70 percent. The investor only has to earn a return of more than 6 percent per month to be able to repay the loan and make a profit. There are some other issues that negatively impact the stock market, but we have listed the most important ones above.
Can we become like Russia and Ukraine again?
Now let’s look at the positive side of the scale, which stops the downward trend of the indicator and turns it upward. First of all, it is important that US Secretary of State Antony Blinken comes to Turkey to find a solution to the Israeli-Palestinian war. This situation has created expectations among investors, especially foreign investors, about whether Turkey is able to play a mediating role, as it did in the Russia-Ukraine war. This expectation supports the scenario of the return of foreign investors to the Istanbul Stock Exchange, which began to fade 3 weeks ago. The risk premium (CDS) in Turkey fell from more than 420 to 370 points.
Erkan speaks while the markets are collapsing
Despite the war, foreign investors began to look favorably on the assertive implementation of the New Economic Policy. Another development that supports this is that Central Bank Governor Jay Ercan’s messages are viewed very positively every time. The markets became positive every day Ercan spoke.
One of the most important issues on the positive side of the scale is that earnings on the 9-month balance sheets are much higher than expected. Almost every company’s earnings are seen as a surprise. This situation is considered an indication that the profits of listed companies will continue under all circumstances. The latest earnings numbers and the fact that company values have become very cheap after falling 15.7 percent in 3 weeks are increasing the appetite for investing in the stock market.
(tags for translation)News