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Foreign investors are beginning to move into Turkish stocks and bonds as the Turkish government’s economic policy reforms have attracted the interest of fund managers who had retreated from the country in recent years.
The three deals this week are the latest sign that some foreign investors are taking a wait-and-see approach following Turkish President Recep Tayyip Erdogan’s abrupt change in economic policy direction after winning general elections in May.
Turkish lenders Vakıfbank and Yapı Kredibank successfully sold a combined $1.3 billion in dollar-denominated bonds, while baby products retailer Ebebek attracted 24 international institutional investors in its $70 million initial public offering.
“In recent months, we have seen a notable and positive change in international investor interest in Turkey’s capital markets,” said Selim Kervanci, chief executive officer of HSBC Turkey. “Interest is broad-based, with demand from the UK, Europe, the US and the Middle East once again turning to Turkey as an investment destination.”
Ebebek has attracted far more foreign institutional investors than any other IPO on the Istanbul bourse so far this year, while the median deal in 2023 has attracted just two international institutional investors, according to Financial Times calculations based on company disclosures.Many of this year’s deals have relied heavily on Turkish retail investors who have rushed to the market seeking refuge from a severe inflationary crisis.
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U.S.-based Franklin Templeton and emerging markets specialist East Capital each took just over 5 percent of Ebebek’s IPO shares, according to regulatory filings, marking the first time this year that mainstream foreign fund managers have bought such a large chunk of a Turkish IPO.
Foreign investors have poured about $1.4 billion into Turkey’s stock market since the beginning of June, but allocations to Turkish stocks and bonds remain near historic lows as Erdogan’s unorthodox policies have destabilized Turkey’s $900 billion economy and sparked an inflation crisis.
“With the decisions currently being made, blue-chip foreign institutional investors are starting to show greater interest in the Turkish economy than before,” said Tunci Yildirim, head of institutional equity sales at ÜNLÜ & Co, which led the Ebebek IPO.
Yildirim said foreign interest has “accelerated” after Turkey’s central bank raised interest rates by 7.5% last month, much more than market expectations, as it stepped up efforts to combat inflation. Many investors see the hike as a sign that central bank governor Hafize Gaye Ercan, appointed in June, is serious about his pledge to restore price stability by rolling back low interest rates introduced at the behest of President Erdogan.
Jacob Grapengiesser, chief investment officer at East Capital, described the big rate hike as a “game changer.” He said the asset manager had been “relatively lightly invested in Turkey but has gradually increased its position.” [since the election]”.
Expectations that Turkey will stick to its new economic plan were further boosted on Wednesday when President Erdogan, a lifelong opponent of high borrowing costs, promised to adopt “tight monetary policies” to fight inflation that the government predicts will reach 65 percent by the end of the year.
The Waqf Bank-Yapi Kredi deal also highlights that companies are starting to consider entering international bond markets, which many executives and bankers saw as largely closed to Turkish companies amid economic uncertainty earlier this year.
State-run Vakıfbank won a $2.2 billion order for a $750 million, five-year sustainable dollar bond deal, according to a term sheet seen by the Financial Times. The deal was the first big international bond issuance by a Turkish company since April, and yielded just over 9%, according to Dealogic data. Another dollar bond from Vakıfbank due in 2026 traded for a 12% yield in May, amid turmoil in Turkish markets.
In a further sign of increased activity in debt capital markets, Yapi Kredi, another major Turkish lender, sold a $500 million, five-year sustainable dollar bond at a yield of 9.4%, attracting $1 billion in orders for the deal.A senior capital markets banker at a major Western bank said other Turkish companies are also starting to prepare debt transactions.
HSBC’s Kervanci said one trend that could be beneficial for Turkey’s capital markets going forward is that a wider range of investors are looking at Turkish financial assets. [are] Beyond major blue-chip and export companies, we aim to invest in a broader range of Turkish listed clients.”
