Single Istanbul Brokerage Drives Dramatic Turkish Stock Gains

(Bloomberg) -- As advancing Turkish stocks have closed in on a record high this year, a single brokerage has emerged as handling the largest trades on many of the market's most tumultuous days.

It's a pattern that has unnerved some Istanbul money managers and prompted them to question how sustainable the unforeseen rally will prove to be. Suspicions around the wild market swings have turned to algorithms and high-frequency trading.

On two-thirds of the days so far in 2017 when the benchmark index has either gained or lost at least 1 percent, the dominant trader was Istanbul brokerage Yatirim Finansman, data from the city's bourse show. A move that size has happened on 12 days, with Yatirim Finansman either the biggest net buyer or net seller on eight of them. Yatirim Finansman declined to comment, citing client confidentiality.

“I'm a little tired of finding a sole brokerage behind the big-move days,” Burak Cetinceker, a money manager at Istanbul-based Strateji Portfoy, said by phone. “Turkish stocks were not expensive, and there were attractive fundamentals. But when it runs to a record from deep levels so quickly, it makes one jittery.”

Last year, Yatirim Finansman's former CEO, Seniz Yarcan, provided a partial insight, telling Dunya newspaper that the abnormally large trades were “not an investor, but a big, new fund-investor profile that trades with algorithms.”

Explaining sharp swings in markets can be an imprecise science, and it is possible that elevated levels of automated trading by one or more Turkish brokerages is triggered by volatility on the exchange's busiest days and not the cause of the moves. Algorithmic strategies targeting spreads between buying and selling positions in equities often become more profitable when the market is at its most turbulent.

The Borsa Istanbul 100 Index has surged 15 percent this year to be among the world's five best-performing benchmarks in local-currency terms. The rally to within 3.7 percent of the all-time high set in May 2013 wrongfooted most investors, who started the year with a cautious approach.

The turnaround came on Jan. 12 -- a day after Turkey's lira hit a record low against the dollar -- when the Borsa Istanbul 100 Index rose 4.2 percent. On that day, Yatirim Finansman was a net buyer of 355.6 million liras ($96.4 million) of shares, more than double the business done by Credit Suisse, the second-busiest brokerage, according to official data, as trading volumes smashed records.

‘The Dude'

Yatirim Finansman has been the talk of Istanbul money managers before. Early last year, large trades made through the brokerage moved the Turkish stock market and drove volume higher. Local traders started referring to the mystery investor, whose identity was never revealed, as “the Dude.”

“We have seen similar moves by this brokerage before, where it drove stocks to highs, just to sell it aggressively afterwards,” Cetinceker said. “It is a very uncomfortable feeling, because you sense that this may be a highly artificial move. And I don't think I'm alone in thinking this.”

The unidentified but influential investor was said to have first appeared about two-and-a-half years ago, placing $450 million of bets on stocks in a single day, almost double the market average at the time. The unexplained trades may become an increasingly common feature of the Turkish market as emerging-market rivals lure investors.

Turkish stocks are “fast becoming an algorithm-led trading market, in which every upmove has the same names, and the institutional investment story is becoming a secondary thought,” said Isik Okte, investment strategist at Istanbul-based TEB Investment, a local unit of BNP Paribas.

As recently as Feb. 22, shares of Koc Holding, Turkey's biggest conglomerate, and Turkcell, the country's largest mobile phone company, suddenly plunged 10 percent, triggering circuit breakers. Almost all of the sell orders were placed by a single brokerage, Finans Invest, according to data compiled by Bloomberg. Borsa Istanbul Chairman and Chief Executive Officer Himmet Karadag said algorithmic trade was to blame for the dramatic declines.

“With Turkish equities' weighting in global emerging-market indices slumping and real money interest lower due to better long-term investment stories in Asia and LatAm markets, algorithmic traders are finding it easier to take over the market,” Okte said. Turkey's weighting in the MSCI emerging markets index was 1.05% as of Feb. 28, down from 1.81 percent at the end of 2014.

--With assistance from Fercan Yalinkilic

To contact the reporter on this story: Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, John Viljoen