The anxious case can now be made by the Turkish stock investor. Fears have mounted as the normalisation of interest rates is likely to terminate the astonishing 440% rally the market has enjoyed. Investors remain jittery as this potential shift has hitherto remained uncertain.
The outstanding rise in the stock market of Turkey has been seen, unprecedentedly being greatly supported by unorthodox monetary policies. Lower interest rates have provided room for investments to gush in and take the stock market to levels previously believed unreachable. This may be a short-lived period of growth as the government considers a retreat into more mainstream economic policies.
The Central Bank of the Republic of Turkey has, on the instructions of President Recep Tayyip Erdogan-who clings to the unorthodox view that a rate cut will result in lower inflation-already undertaken a spate of rate cuts in defiance of orthodox economic principles. The Turkish lira had plunged as a result, forcing local investors into stocks as a hedge against currency depreciation.
But change might be in sight. The present administration is battling with the intensive pressure to rein in the spiraling inflation. One of the needed measures to contain the runaway prices, which have gone in rampage and hurt the economy by shrinking the purchasing power of ordinary people, is the probable shift to higher interest rates.
Yet such a step proves to be both boon and bane. While stronger interest rates may finally hobble inflation and stabilize the currency, on the flip side, it could prevent foreign and local investment from continuing to drive the stock market to its current altitude. It's one fine tightrope between reinforcing economic stability and keeping the economy's enthusiasm at a fever pitch that policymakers now have to walk.
Investor sentiment, therefore, closely ties in with these imminent decisions. A government decision to hike rates can trigger the liquidation of those investors that have gained handsomely from this bullish spurt of the market. This may result in a possible downward spiral that would erase hard-earned gains of the past months.
It is a very critical juncture for the financial markets of Turkey. The decisions taken in the coming weeks and months will tell upon the course which the stock market and the entire economic scenario will take. Investors, both domestic and foreign, await the event with bated breath as they get ready for what could be a decisive juncture in Turkey's economic story.
As events unfold, stakeholders will have to be agile, ready to move with the tides of change. The policymakers will have to work with an uphill task, a task that will be Herculean in itself: to guide the economy toward firmer ground without pulling down the pillars that have held the stock market aloft.
Indeed, the next few months will testify to the strength and elasticity of the financial ecosystem in Turkey. Whether the stock market will continue the incline it has so far shown, or whether it will give into the rate normalization pressures, remains to be seen. One thing, however, is certain: the eyes of the investment world are firmly fixed on Turkey.
Stay tuned for more updates on this evolving story.
#Turkey #StockMarket #InterestRates #Inflation #EconomicPolicy #Investors #CentralBank #TurkishLira #FinancialMarkets #InvestmentStrategy
Author: Daniel Foster
