Turkey’s sovereign wealth fund will channel cash into the nation’s main stock exchange via exchange-traded funds, in an open-ended attempt to keep the equities market from falling.
(Bloomberg) —
Turkey’s sovereign wealth fund will channel cash into the nation’s main stock exchange via exchange-traded funds, in an open-ended attempt to keep the equities market from falling.
The fund, known by its Turkish initials TVF, will allocate at least $1 billion initially to ETFs run by a state bank, according to people familiar with the matter.
The move differs from previous attempts to support Turkish equities since the Borsa Istanbul resumed trading following a halt caused by two devastating earthquakes on Feb. 6. The government initially channeled pension funds’ money into the market to reverse the rout after the natural disaster.
The plan is to use ETFs currently run by Ziraat Portfoy, the asset-management arm of state lender T.C. Ziraat Bankasi A.S., the people said, asking not to be identified because of sensitivity of the matter. The funds track the performance of various indexes related to the Borsa Istanbul.
Ziraat Portfoy declined to comment and TVF didn’t immediately respond to requests for comment on the planned investments.
The Borsa Istanbul 100 Index erased losses of as much as 1.6% after the news and closed 2.7% higher. The index is up more than 15% since it reopened on Feb. 15 after a weeklong closure following the earthquakes. The banking index jumped more than 7% on Monday and Turkish Airlines, a company under the wealth fund’s management, climbed 6.2%.
The state support has not yet translated into a surge in interest in Turkish stocks abroad. Foreign investors sold their holdings in the New York-traded iShares MSCI Turkey ETF at the fastest pace in more than a year over the past week, data compiled by Bloomberg showed.
Foreigners Pull Out From Turkey ETF at Fastest Pace Since 2021
The sovereign wealth fund’s support will dwarf earlier measures in size, and come ahead of elections slated for May. Domestic investors have become the dominant force on the Borsa Istanbul in the past several years as they sought protection against rampant inflation, a development that has also made small local investors politically influential.
Dividends, Borrowing
The exact size of the fund at its inauguration will be determined once all the TVF companies, such as Turkish Airlines, report 2022 earnings, one of the people said. The cash pool may gradually grow beyond the estimated initial amount of $1 billion, said the person.
The TVF gets cash in the form of dividends from the companies in which it holds stakes. It’s also active in debt markets and can create funds through borrowing in liras and foreign currencies.
Ziraat has several ETFs tracking Turkey’s main stock exchange, with some focusing on large companies only, such as those listed in the Borsa Istanbul 30 index. Ziraat Portfoy’s BIST 30 Index Fund, the biggest local ETF for Turkish stocks, has already seen 8.1 billion liras ($430 million) in inflows since Feb. 15, according to data compiled by Bloomberg.
The Istanbul exchange’s main index, the BIST 100, has a market cap of about $220 billion. Average trading volume in the past month was about $3.8 billion a day, according to data compiled by Bloomberg.
Indexes tracking larger companies will likely be the priority target for the sovereign wealth fund and the buying program has no expiration date, the people said.
–With assistance from Beril Akman, Firat Kozok and Tugce Ozsoy.
(Updates with closing prices in sixth paragraph. A previous version of this story corrected the average daily trading volume on the Istanbul exchange.)
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