Locals Replace Foreigners in Turkey’s Record Stock Market Rally

(Bloomberg) --

Turkish stocks are about to set a record for their longest-ever rally. It's all thanks to locals, because foreigners have turned their backs on the Istanbul equity market in unprecedented fashion.

The Borsa Istanbul 100 Index climbed for a 13th day on Friday, on course for the most sustained run of gains since Bloomberg started tracking the benchmark. In sharp contrast, offshore investors were net sellers for a 19th week in a row as of May 29, the latest central bank figures show. That's the most back-to-back outflows since the numbers were first collected in 2005.

The very factor drawing more and more locals to the stock market is the main reason foreigners have been heading for the exit: the diminishing appeal of Turkish fixed-income assets. And, although Turkish stocks have recently been gaining in local-currency terms, the lira's 12% slump against the dollar this year has added to their unattractiveness to outsiders.

“Strongly negative real interest rates deter fixed-income investors,” said Julian Rimmer, a trader at Investec Bank Plc in London. “As a result, internationals have deserted the equity market in droves. For Turks, however, it's more difficult to find alternative investments to fixed income or deposit accounts and so they are forced into the stock market to try and beat inflation and protect savings.”

On top of that, some foreign investors have doubts about the government's management of the economy and the central bank's capability of delivering appropriate monetary policy, Rimmer said.

Foreign investors have been net sellers of $3.96 billion in Turkish equities this year and there has only been one week when inflows have exceeded outflows.