Turkey’s $1 bln ETF intervention can’t end stock bear market

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Turkish stocks are sinking deeper into a bear market, defeating an open-ended attempt by the government to keep equities from falling as investors favor safer assets in the run-up to this month’s elections.

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Turkey’s sovereign wealth fund has channeled more than $1 billion into the nation’s main bourse, Bloomberg reported in February, using exchange-traded funds run by Ziraat Portfoy, the asset-management arm of state lender T.C. Ziraat Bankasi A.S.

But the effort has faltered, as retail investors increasingly look to park their savings in lira deposits where returns are at a two-decade high. The benchmark BIST-100 Index dropped as much as 4.3 percent on Wednesday to the lowest since Nov. 8, before trading down 3 percent as of 12:50 p.m. in Istanbul.

The gauge is down more than 20 percent from its peak in January — the traditional definition of a bear market.

“Uncertainties for the post-election period have started to weigh down more significantly this week, said Mehmet Gerz, chief investment officer at Ata Portfoy in Istanbul. “With deposit rates rising, both FX-protected lira deposits and other time-deposit instruments have become safer and alternative investment tools for locals.

The setback is especially costly because the sovereign wealth fund’s support for stocks dwarfed earlier measures in size. The equity market has been closely watched ahead of the elections after domestic investors became the dominant force on the Borsa Istanbul over the past few years in pursuit of protection against rampant inflation.

Rates, Election

But with interest rates on the rise, stocks are no longer the only game in town. Investor sentiment has also shifted because of the unease over the outcome of the May 14 vote as President Recep Tayyip Erdogan faces the stiffest challenge of his two decades in power.

Ziraat Portfoy’s two largest ETFs have recently been ramping up efforts to support the equities market after seeing inflows of 2.9 billion liras ($150 million) in the past two weeks.

Since February, when the government first intervened to prop up stocks following two earthquakes, inflows into the funds have swelled to more than 24 billion liras.

Over the past months, average daily volumes are down to $2.5 billion, nearly half their six-month average, data from the nation’s stock exchange show.

“Turkish stocks’ strong rally in 2022 has been a rare bright spot in the economy, Gerz said. “With the number of retail investors having hit millions, it would not be an overstatement to claim the stock market’s level may potentially impact the upcoming elections.

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