HSBC maintains its optimistic outlook on Turkish stocks, stating that the country’s monetary policy normalization has been delayed rather than disrupted by Middle East concerns.
According to a strategy study by HSBC Global Investment Research, Turkish assets have outperformed the FTSE Emerging Markets Index by almost 5% since the beginning of the year and are still reasonably valued despite recent market volatility.
The bank highlighted, however, that most of those gains were recorded in January and February, with the market trading in a relatively narrow range after the commencement of conflict following joint U.S.-Israeli attacks on Iran in late February.
The Central Bank of the Republic of Turkey (CBRT) postponed the start of its monetary easing cycle by keeping its one-week repo rate at 37% for four consecutive months due to rising oil prices that have affected inflation expectations.
According to official figures released on Monday, Turkey’s annual inflation decreased to 31.75% in July for the second consecutive month. Before changing the course of rates, policymakers are keeping an eye on geopolitical developments and inflation data.
Interest rate reduction might start as early as September if domestic economic circumstances continue to improve, according to HSBC’s economists, notwithstanding the delay.
HSBC anticipates that Turkish stocks will be range-bound for a few months before starting a more prolonged surge in the fourth quarter of 2026 and lasting until 2027.
Structural growth
According to the analysis, Turkey has a number of long-term structural investment opportunities that are not exclusively reliant on macroeconomic circumstances or fresh inflows of foreign capital.
Four industries were found by HSBC to have the best long-term investment potential
Defense, is bolstered by growing defense exports from Turkey and increased international military investment.
Large-scale Gulf infrastructure projects, rebuilding initiatives in the Eastern Mediterranean and possible prospects in Ukraine are the main drivers of infrastructure and reconstruction.
AI infrastructure, where supply difficulties and lengthy delivery periods in the US, are helping Turkish manufacturers of electrical equipment and transformers.
Aviation: As airlines progressively redirect traffic through Gulf aviation hubs, Istanbul is predicted to increase its market share.
Valuations are still appealing
Despite a significant drop in foreign investor engagement, Turkish stocks are still trading at appealing prices, according to HSBC.
The research states that foreign investors withdrew almost $2 billion from Turkish stocks between March and June, and that foreign ownership on Borsa Istanbul has decreased from approximately 65% ten years ago to 33%.
The bank maintained that its positive long-term outlook is still supported by low foreign positioning and low values.
According to HSBC, the market’s indicated 25% cost of equity seems unduly conservative in comparison to long-term inflation predictions, and Istanbul is currently trading at a 12-month forward price-to-earnings ratio of 7.5
Regarding Turkish stocks, the bank reaffirmed its “overweight” recommendation. HSBC also identified a number of risks to its forecast, such as the possibility of domestic political unpredictability in the event that early election talks take place.
Investors are keeping an eye on whether Turkey satisfies MSCI’s mandate to enhance free-float transparency by November, according to the article. However, HSBC stated that it anticipates recent regulatory actions to avert any possible limitations pertaining to the nation’s market categorization.
Source: Daily Sabah
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