The Turkish financial markets continue to experience a negative trend in both the stock and bond markets in the first three months of 2023 due to pre-election uncertainty and the unfavorable macroeconomic outlook. The five-year bond yield started in 2023 at 8% and exceeded 14% in the second week of April. The CDS premium, which rose to 904 basis points in July 2022, declined to 506 basis points at the beginning of the new year and followed a sideways trend, reaching 550 basis points in April. Investors seeking direction for their savings, as inflation remained high and gold returns were low due to pressure on the exchange rate in a low-interest environment, turned to deposit accounts with currency hedging and the stock market. As stocks remained an alternative investment option, the Istanbul Stock Exchange experienced a record-breaking period of initial public offerings, exceeding four million investors. The BIST 100 index rose from 1800 to 5700, achieving one of its most significant historical increases. In 2023, uncertainty increased due to the rapid realization of profits, followed by the earthquake disaster and the upcoming election, resulting in high volatility and a sideways trend.
The Federal Reserve is expected to complete its interest rate hike process in the global markets by raising rates by 25 basis points in May. On the other hand, with low expectations for high-interest rates to remain in the United States, the Fed is expected to begin a cycle of interest rate cuts after July. However, the expectation that economic growth will remain low worldwide continues to support the strong demand for gold. Many investors have moved away from traditional investments following the Silicon Valley Bank crisis and subsequent liquidity problems in European banks. Bitcoin has surpassed 30,000 for the first time since June 2022.
In summary, the financial markets in Turkiye managed to end 2022 profitably in both bond yields and stock market growth. However, they started in 2023, struggling to find direction under economic and political uncertainty. Due to the ongoing uncertainty about the May 14 election results, investors' risk appetite is expected to remain low until the election. The markets will continue to experience a volatile trend. After the election, as expectations about the economic policies to be implemented by the new government become more evident, the markets may find direction from June onwards.
While some investors in the financial markets may exhibit speculative behavior in the short term, institutional investors such as investment funds, pension funds, and foreign investors make medium and long-term investments based on macroeconomic expectations, global market developments, and financial performance analyses of companies. In times of uncertainty, systematic (external factors) and unsystematic (internal factors) risks increase, leading investors to diversify their portfolios and engage in more cautious investment strategies.
