An unexpected development from Turkey. Inflation may have soared to unimaginable heights, but at the same time the Istanbul Stock Exchange is experiencing an unprecedented boom, with the BIST-100 index up 31% since the beginning of the year. How is this explained? THE Süddeutsche Zeitung points out: “With a closer look we see that Turkey is not an island of prosperity. On the contrary, the explosion in the stock market is a consequence of the crisis that is tormenting the country, a consequence of a galloping inflation. The rise in prices in Turkey is now at 80% in on an annual basis, at the beginning of the year it was only 20%. The value of the Turkish lira is falling rapidly. A year ago one dollar corresponded to 8.5 lira, today it corresponds to 17.30 lira. Turkish investors are trying to protect themselves from inflation by buying stocks,’ says Ulrich Leuchtmann, head of FX analysts at Commerzbank.
But can the Turkish stock market become attractive to investors from abroad? “Lohitmann sees it likely that foreign investors will also buy Turkish shares, betting on a scenario where the rise in the index will be greater than the fall in the currency,” Süddeutsche Zeitung reports. “Theoretically, these two balance each other out, but in Turkey there are kind of soft restrictions on the movement of capital. The current regulatory framework makes it difficult for any investors to bet on the Turkish lira falling.”
Giannis Papadimitriou
SOURCE: Deutsche Welle
Source: Capital
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