Turkish Stocks Soar as Authorities Intervene to Boost the Market

Turkish stocks leaped almost 10 percent on Wednesday, marking their biggest one-day rise in more than a decade. The surge came after authorities took measures to support the market following a week-long closure. The benchmark Bist 100 index skyrocketed 9.9 percent, with every sector seeing a sharp advance. This rally follows the suspension of trading last Wednesday after the February 6 earthquake set off intense volatility and a sharp drop in share prices.

The Turkish government has implemented various steps to boost the equities market, which, along with the lira, has become a bellwether locally for the country’s economic performance. Despite the criticism that President Recep Tayyip Erdoğan is facing over his handling of the earthquake, a new rule put in place on Tuesday will require public pension funds to hold more Turkish equities, which will likely send about TL8bn ($424mn) flowing into equities in the coming days.

Enver Erkan, an independent economist based in Istanbul, expects that funds will also switch from bonds to stocks, providing a further boost to the Bist 100. Companies, including lender Halkbank, telecommunications group Türk Telekom, Turkish Airlines, and steelmaker Erdemir, have all announced plans to purchase their own stock or scoop up more, taking advantage of a temporary loosening of taxes on corporate share buybacks in the wake of the earthquake.

Despite Wednesday’s rally, the Bist 100 is still down approximately 10 percent for the year, as investors remain cautious ahead of the presidential and parliamentary elections scheduled for mid-May. Foreign investors have fled the market in recent years, as they are concerned about President Erdoğan’s unconventional management of the country’s $800bn economy, high inflation, and rules that have made it more difficult to hedge against volatility in the lira.

While employing local funds and businesses to help the market may provide a short-term boost, some investors believe that these tactics could backfire. Veteran emerging markets investor at GAM Investments, Paul McNamara, pointed to Argentina's move to load up pension funds with government debt before a 2001 default as a prime example of the risks. McNamara cautions that "Pension funds doing national service seldom ends well."

The recent market surge is a significant development for Turkey, which has been struggling to maintain economic stability for years. However, it remains to be seen whether the government's intervention will result in sustainable long-term growth or exacerbate existing economic issues.