Foreign investors snatch up Turkish stocks and bonds

Dünya Executive - - COMMENTARY - Alaattin AKTAS Economist

Last week, share prices hit high after high, and the exchange rate fell as far as 3.54 lira to the dollar. It was clear that money was entering the market. The Central Bank statement showed foreign investors had purchased a net $129 million in stocks, but the real interest was in government domestic bonds.

Foreign investors bought $739 million worth of Turkish domes- tic debt in just one week, bringing the combined foreign inflows to $869 million.

These purchases are the net change, free of movements in the market price and foreign-exchange rate.

In the third week of April, foreigners had sold a net $71 million. That brings the balance of the two weeks following the April 16 constituti­onal referendum to a net $798 million of foreign inflows. In the two weeks prior to the referendum, foreigners bought a net $857 million of Turkish stocks and bonds.

According to the Central Bank’s figures, foreigners bought close to $2.98 billion of shares and domestic debt in the first four months of the year. In January, they sold a net $150 million, then in February bought $804 billion, in March $668 bil- lion and in April close to $1.7 billion.

This brings assets owned by foreigners to $72.8 billion as of April 28. Of this, $44.1 billion is in stocks and $28.7 billion is in government domestic debt, the Central Bank’s figures show.

Stability attracts investors

So, why are they coming? With the referendum campaign behind us, foreign investors view promises by political leaders that there will not be another election until 2019 as a sign of stability. This period of two and a half years is an opportunit­y to implement economic policies, though we may see electoral-driven policies take hold as we approach 2019. Until then, the current economic policy will not change, this much is clear, and it has given comfort to the foreign investor.

Foreign investors in Turkey pay closest attention to changes in the exchange rate. It appears that concerns about this have been laid to rest following the referendum.

Rapid fluctuatio­ns in the exchange rate can suddenly wipe out profits and incur losses. A reduction in the Turkish risk premium created a sudden interest in Turkish assets. Of particular importance is the interest in the government’s domestic bonds.

The $2.98 billion of foreign inflows in the first four months of the year is comprised of $1.24 billion in equities and $1.74 billion in government domestic bonds. It is noteworthy that stocks attracted more foreign investment in the first few months before being overtaken by purchases of domestic debt securities.

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