Revival of interest in Turkey by foreign investors ahead of elections

Sinan Tavsan evaluated the possibility of renewed interest in Turkey by foreign investors for the financial newspaper, Nikkei Asia. Tavsan writes that the upcoming parliamentary and presidential elections in May have attracted foreign investors that had left the country in the past few years as a result of the Erdogan administration’s unorthodox monetary policies.

In efforts to protect the lira from further devaluation as the country struggled to overcome persistent economic crises, the Erdogan administration attempted back-door currency market interventions. According to Bloomberg economist Selva Baziki, the value of these interventions since December 2021 alone is approximately $128 billion.

When these attempts did not yield the desired results, the government implemented schemes for foreign currency-indexed lira deposits to combat the high inflation rate and the depreciation of the Turkish currency. According to Nikkei Asia, the value of these deposits has ballooned to more than $86 billion. Whichever party wins the election in May will face the daunting task of dealing with these accounts which could “create more burden on the treasury and central bank,” says economist Haluk Burumcekci.

Foreign investment in Turkey continued to dwindle throughout this period. While more than 25% of Turkish government debt was held by foreigners approximately five years ago, that figure now stands at 1%. Tavsan writes that foreign stock ownership in the same period also dropped by half to below 30%.

According to Tavsan, foreign investor groups have begun to visit Turkey in droves ahead of the elections, and many are holding meetings with officials from both the incumbent and the opposition parties.

Among those who are visiting the country are the French banking group BNP Paribas, which will be in Turkey in April, as well as the Spanish bank BBVA which is in the country this week. Reuters reports that BBVA is, “bringing clients with some $1.5 trillion in debt-related assets to the country.”

Tim Ash, a strategist at BlueBay Asset Management, has also highlighted the likelihood of increasing foreign investment, saying, "Almost every day I get invited to a Turkey analyst call. There are lots of trips and calls with analysts and pollsters."

However, Tavsan warns that in a meeting attended by Nikkei Asia recently, some investors said that “they would only return to Turkey if the government restores orthodox monetary policy and lets market forces determine the lira's value.”

In this regard, Tim Ash says, “Investors] still have underlying faith in Turkey, they just hate the unorthodox policies run by Erdogan. If we see a return to monetary policy orthodoxy I think foreign institutional investors would return en masse, and very quickly. Fundamentally, I think Turkey is quite sound."