Turkish banking stocks roller coaster rattles investors

Early morning sunlight streams through residential housing stretching to the skyline of Istanbul in Turkey June 13, 2018. REUTERS/Russell Boyce

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ISTANBUL, Sept 16 (Reuters) – Dizzying volatility in Turkish banking stocks has left investors reeling after a 100% rise in the stock market this year, driven by the highest real yields available, gave way to a sharp drop this week.

Between July 14 and the September 12 closing high, the main Borsa Istanbul index (.XU100) rose 53.7% in lira and 46.85% in dollars. Over the same period, the banking index (.XBANK) jumped 151.2% in lira and 140% in dollars.

Reversing sharply, shares of lenders have plunged as much as 28% since Monday’s close.

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The initial rally came as inflation, at over 80% last month, fueled a national cost-of-living crisis that was sparked a year ago by demanded unorthodox interest rate cuts. by President Tayyip Erdogan. Read more

Soaring inflation prompted investors to dive into stocks to protect their savings, analysts said. The shares were also seen as a hedge against the fall of the lira, which lost 44% against the dollar last year and another 27% this year.

“Everyone has been scratching their heads about what’s going on here,” said Oliver Adcock, fund manager of the Nedgroup Investments Global Emerging Market Equity Fund.

“I think retail investors are buying to hedge inflation risk, and … have been allowed more leverage.”

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Bank shares jumped more than others on the Istanbul stock exchange, as results in mid-July showed their profits jumped by around 400%.

Before bank stocks reversed sharply this week, investors’ profits largely went to locals: Foreign investors’ share of Turkish stocks fell to 33% in July from 63% at the start of 2020.

The foreign share increased slightly in mid-August and was 35% on August 25, according to data from the exchange.

Cemal Demirtas, deputy managing director of Ata Invest, said global inflation was pushing all stock markets higher and that Turkey had also benefited from recent exchange rate stability and a “balanced” foreign policy.

“So I can’t say that the stock market’s long-standing rise is unfounded. However, extreme highs and lows don’t make sense.”

MSCI Turkey, the best performing stock market in emerging economies

Analysts said highly leveraged futures positions drove the bank index higher and margin calls contributed to the subsequent decline.

A banking analyst who requested anonymity said that certain companies in particular were carrying out the transactions on the futures market.

“It’s very clear that some brokerages are leading the trades,” but the clients are unclear, the analyst said.

The Turkish Wealth Fund (TWF), cited in some media as a buyer in the futures market, told Reuters it had made no such trades.

TWF, Turkey’s strategic investment arm, said it was focusing on optimal financing and investment, as well as transparency.

“In this context, we are sharing our transactions with the public. There have been no transactions regarding bank shares on Borsa Istanbul,” TWF said in response to a question.

Soner Kuru, an economist at Marbas Investment, said the latest selling in bank stocks after the surge was triggered in part by stronger-than-expected US inflation figures.

“We expect market volatility to continue…(and) we continue to price pullbacks as buying opportunities,” he said.

(This story has been reclassified to correct a typo in the fund manager title in paragraph 6)

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Additional reporting by Azra Ceylan in Istanbul and Marc Jones in London; Written by Daren Butler; Editing by Jonathan Spicer and Nick Zieminski

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