As geopolitical risks ease, investor appetite for Turkish assets is on the rise. BNY Senior EMEA Market Strategist Geoffrey Yu highlights the relatively cautious stance on Borsa Istanbul (BIST100), while underlining the strong yield advantage in Turkish bonds.
Global markets entered 2025 with expectations of Trump reversing tariffs, continued rate cuts, stronger U.S. growth through tax relief, and a strengthening U.S. dollar amid European economic weakness. These hopes also included easing geopolitical risks, potentially pushing the EUR/USD below parity.
However, contrary to these expectations, the first half of the year saw Trump’s unpredictable remarks increase trade policy uncertainty, reviving recession fears. Rising U.S. debt accelerated a move away from the dollar, with EUR/USD approaching 1.18. Heightened geopolitical tensions also led to volatility in commodity prices.
Amid these developments, Emerging Europe (+45%), Latin America (+29%), silver (+27%), and gold (+25%) stood out as the best-performing assets in the first half of 2025. As tensions like the Israel-Iran conflict subsided and domestic Turkish political uncertainty was deferred, risk appetite toward Turkish lira assets increased in June. The BIST100 Index gained 10% in June alone.
Still, for H1 2025, the BIST100 rose just 1.2% in lira terms and lost 10% in dollar terms. Weak inflation prints for May and June revived disinflation pricing in equities. However, persistent core inflation has kept the BIST100 in a zone of “cautious optimism.” As of July 9, the index is up 3.4% in lira and down 8.7% in dollar terms year-to-date. Relative to the MSCI EM Index, BIST100 trails by 21%, delivering a negative real return of about 14% over six months when adjusted for inflation.
With a volatile start to July, the upcoming Central Bank of Turkey (CBRT) interest rate decision on July 24 and credit rating reviews by Moody’s and Fitch on July 25 are expected to significantly impact BIST100 pricing.
Speaking on the outlook, BNY’s Geoffrey Yu suggests that Turkish bonds may outperform equities for the remainder of the year. “Fed rate cuts tend to boost emerging markets. While BIST100 could benefit, we don’t expect strong divergence if the U.S. economy slows and Europe and China remain under pressure,” Yu noted.
He emphasized a favorable backdrop for Turkish bonds: “At BNY, we see client positioning on the long end of the Turkish yield curve. The CBRT hasn’t cut rates, inflation is falling, and Turkey’s credibility is improving—these are valuable factors.”
Yu also pointed out that “Bond inflows were limited in April and May, but we expect more interest as the Fed begins its easing cycle. There’s still demand for carry trade in Turkey. Investors reducing dollar exposure may be drawn to Turkey’s attractive carry trade yield.”
Source: Bloomberght/ Prepared by: İlayda Gök