Turkish stocks rise as support efforts bear fruit

Turkish shares rose nearly 10 percent on Wednesday as measures by authorities to support the market prompted traders to plunge into shares after a week-long shutdown.

Benchmark Bist 100 index rose 9.7 percent on Wednesday midday in Istanbul, on course for its biggest rise since 2008, according to Refinitiv data. The big rally came after authorities suspended trading last Wednesday after the February 6 earthquake had triggered intense volatility and a sharp drop in stock prices.

The surge came after Recep Tayyip Erdoğan’s government launched a series of measures to boost the stock market, which, along with the local lira, has become a guiding star for the country’s economic output. Erdoğan faces heavy criticism for his handling of the worst earthquake in modern Turkish history, which killed more than 35,000 people in Turkey and thousands more in neighboring Syria.

The Turkish president is also facing a strong backlash over lackluster building standards, which analysts say have worsened the effects of the quake in southern Turkey.

According to Enver Erkan, an independent economist based in Istanbul, a new rule that came into effect Tuesday requiring public pension funds to hold more Turkish stocks will see about TL8 billion (US$424 million) flow into equities in the coming days . Erkan said the funds would also switch from bonds to equities, giving the Bist 100 another boost.

“Investors are not stupid; they see where the wind is blowing,” said Murat Gülkan of OMG Advisors in Istanbul, adding that increased pension fund purchases would have an important “signalling effect”. “There’s going to be that money coming in and not very many sellers,” he said.

At the same time, several companies have announced plans in recent days to either start buying their own shares or to buy more. A temporary relaxation of taxes on company share buybacks after the earthquake makes the process more attractive to companies, analysts say.

Corporations including lender Halkbank, telecoms giant Turk Telekom, Turkish Airlines and steelmaker Erdemir have all made announcements over the past few days.

Even after Wednesday’s rally, the Bist 100 is down about 10 percent for the year. Investors say they are cautious about investing in the Turkish market ahead of the presidential and parliamentary elections scheduled for mid-May.

Erdoğan’s unconventional management of the country’s $800 billion economy, which many economists blame for very high inflation, and regulations making it more difficult to hedge against the volatility of the lira, have drawn foreign investors into the left the market in recent years.

While using local funds and companies to support the market can give the market a short-term boost, some investors say this type of tactic can backfire. Paul McNamara, a veteran emerging-markets investor at GAM Investments, cited Argentina’s move to load bond funds with government debt ahead of a 2001 default as a key example of the risks.

“Pension funds that do military service rarely do well,” he said.