The Turkish benchmark stock index has been roaring back since early November as investors boosted their holdings of the country’s stocks and bonds that followed series of interest rate hikes by the central bank.
Strategists say the Borsa Istanbul 100 index could keep up with gains and records throughout 2021 and see levels reaching 1,900 points. Yet, they list the process related to the vaccine rollout and whether the matter of a weaker U.S. dollar will continue among the main risks.
More than $15 billion has streamed into Turkish assets since November when President Recep Tayyip Erdoğan promised a new market-friendly era and installed a new central bank chief.
A dozen foreign money managers and Turkish bankers Monday said those inflows could double by mid-year, especially if larger investment funds take longer-term positions, following on the heels of fleet-footed hedge funds.
In an unprecedented environment overshadowed by the coronavirus outbreak, 2020 has seen risk appetite rise along with the number of people investing in stock markets.
In light of recent developments and expectations for the coming months, Gedik Investment, Vakıf Investment and Deniz Investment strategists expect interest in equities to continue in 2021 on a local and global basis as they revised upward targets for the BIST 100 index.
Gedik Investment strategists see the index reaching 1,750 points this year, up from the previous forecast of 1,250 points.
The index was up 0.2% at 1,540.22 points at 3:25 p.m. local time on Tuesday, compared with as low as 1,112.37 in late October.
"The main reason for our upgraded index target is the reduced risk premium and the operating performance of companies that have been continuing better than expected," the Gedik Investment report said.
Unless a serious game-changing factor is identified, Deniz Investment expects interest in equities to continue in 2021.
"For the BIST 100 index, we set the target price level at 1,900 points for a 12-month term," its report said.
Vakif Investment sees the index reaching 1,803. According to its report, its strategists believe the forecast would be supported by elements such as market-friendly rhetoric, practices of the new economic management, foreign investors returning to the BIST 100 with reduced volatility in the Turkish lira and the search for returns in the global low-interest environment.
In addition to the simplified and market-friendly policies of the economic management, according to the report, foreign investor interest, which remained low throughout 2020, could turn into an advantage with the demand that may occur in 2021.
It said the increase in the stock markets is expected to maintain its course throughout this year.
A strategic report by Gedik Investment highlighted the global recovery expectations in 2021, stressing that the risk appetite is maintaining its strong course, supported by the expected rapid and synchronized recovery in global economic activity with the spread of vaccinations.
Among other supporting factors are said to be expectations that geopolitical tensions could somewhat decrease under the new U.S. President Joe Biden and expectations that monetary and fiscal policies around the world will continue to be loose.
Turkey’s tight monetary policy and the normalization of its economic policies continue to support the markets, according to the report.
Since taking the Central Bank of the Republic of Turkey (CBRT) reins in early November, Naci Ağbal has hiked interest rates to 17% from 10.25% and promised even tighter policy if needed as he vowed to decisively battle inflation, which still persists as one of the main risks for the country.
Annual inflation climbed to 14.6% from 14% in November, according to the official data, keeping pressure on the central bank to maintain a tight monetary policy.
The data compiled from the reports show the strategists expect inflation in the country to be between 10.8% and 11.5%. It says the inflation could surge up to 15% until the March-April months before entering a downward trend and ending the year between 11% and 11.5%.
Ağbal’s hawkish stance and messages have been lifting the Turkish lira, which touched a record low in early November a day before he took office.
Gedik Investment’s report highlights the trend in the lira could maintain course in the short-term.
The economy could be seeing a significant slowdown in the first two quarters of 2021 due to demand that was put forward to take advantage of the low-interest-rate environment in previous months and the recently imposed restrictions to curb the increase in COVID-19 infections and deaths, according to the report.
Yet, despite the potential slowdown, it says the second quarter could see double-digit gross domestic product (GDP) growth due to the positive base effect.
Expectations on the 2021 GDP growth in the reports vary between 2.5% and 4%.
The economy grew 6.7% in the third quarter of 2020 after contracting by 9.9% in the previous three months when lockdowns were imposed to curb the initial COVID-19 wave.
According to the new economic program, announced last September, Ankara projects 2020 growth to come in at 0.3%. It expects a rebound of 5.8% in 2021.