Turkey’s struggle with a shrinking stock market

Turkey is trying to prevent the stock market from declining. In an effort to achieve this, the sovereign wealth fund will use exchange-traded funds to transfer money to the country’s major stock exchanges.

According to sources close to the matter, the fund, known by its Turkish initials TVF, will initially contribute no less than $1 billion to ETFs operated by a state bank. This approach differs from previous efforts to bolster Turkish stocks.

The Borsa Istanbul began trading again on February 6 after a hiatus brought on by two disastrous earthquakes. Following the recent catastrophic event, the government originally allocated pension funds’ money to reverse the damages. 

Ziraat Portfoy is the asset-management division of state lender T.C. Ziraat Bankasi A.S. Sources who requested anonymity reported that he will continue to manage ETFs as part of the plan. The funds supervise the performance of different Borsa Istanbul-related indexes.

Both Ziraat Portfoy and TVF have refrained from commenting on future investments. 

Following the tragic news, the Borsa Istanbul 100 Index reversed losses of up to 1.6% and was up 1.5% at 4 PM in Istanbul. The index has increased by 12% since it resumed operating on February 15. 

Government aid has not yet ignited foreign investors’ interest in Turkey’s stock market.  Investors abroad scurried to sell their holdings in the iShares MSCI Turkey ETF, according to data gathered by Bloomberg. 

The involvement of the sovereign wealth fund will significantly overshadow prior initiatives and will come before the May elections. In recent years, domestic investors have dominated Borsa Istanbul as they sought shelter from raging inflation; this dynamic has also given small local investors political sway. 

How do Ziraat Portfoy and TVF operate?

One of the insiders stated that after all of the TVF companies, notably Turkish Airlines (THYAO), declare their 2022 earnings, the accurate size of the fund will be revealed. The source indicated that the expected initial cash pool of $1 billion might progressively increase.

The TVF receives cash in the form of dividends from the businesses in which it has investments. Also involved in the debt markets, it can fundraise by borrowing in liras and other currencies.

Ziraat has a variety of exchange-traded funds (ETFs) that monitor Turkey’s primary stock exchange, some of which specialize primarily in prominent corporations, such as those included in the Borsa Istanbul 30 index. According to data compiled by Bloomberg, 8.1 billion liras ($430 million) have already been invested into Ziraat Portfoy’s BIST 30 Index Fund since Feb. 15. This is the largest local ETF for Turkish companies.

The BIST 100, the principal index of the Istanbul exchange, has a market value of around $220 billion. During the previous month, trading volume averaged around $3.8 billion per day.

The sovereign wealth fund’s central emphasis will presumably be indexes that track larger companies. The acquisition program has no timeframe, according to the sources.