1- HIGH INTEREST RATES
The rise in interest rates has generally been detrimental to stock markets. With high deposit interest rates, most savers prefer to invest their savings in this risk-free instrument. If there is no new narrative in economic policies to stimulate investors, the stock market tends to stagnate during periods of high interest. Although interest rates began to decline in 2003, they remained at very high levels. Nevertheless, the stock market gained 79.61% that year, primarily due to the comprehensive reform programs being implemented at the time.
2- LOW FOREIGN INVESTOR INTEREST
Foreign investors were expected to start entering the stock market from May onwards. However, this did not happen; rather, there were significant outflows. Since the beginning of the year, foreign residents have sold $2.385 billion worth of shares.
3- DOMESTIC INVESTORS DISTANCING FROM THE STOCK MARKET
With no influx of foreign investors, the hope for a market rally falls to local investors. However, due to high interest rates, domestic investors are not very keen on the stock market. In fact, many investors are closing their brokerage accounts. According to data from the Central Registration Agency, the number of investors has decreased by 1.2 million over four months, down to 7.1 million.
4- LOW INTEREST IN IPOs
Especially in the period that began during the pandemic, initial public offerings (IPOs) had triggered a rise in the stock market. However, interest in IPOs has significantly declined. Many companies that went public have seen their stock prices fall after the initial offering. The BIST100 “IPO” index has dropped by about 6% this month.
5- HIGH VOLATILITY
Volatility in the stock market is at a very high level, with considerable differentiation among stocks. Even when the market turns positive, some shares experience significant declines. Many investors are facing severe losses in various stocks. Due to the psychological impact of this situation, investors may sell off their holdings at a loss. With this in mind, they are also hesitant to purchase new shares.
6- WEAK CORPORATE BALANCES
The second-quarter earnings reporting period for the stock market recently concluded. Most companies’ financial results fell short of expectations, showing declines in equity and profitability. Expectations for the third-quarter reporting period are also not very positive. One significant reason for this is the weakening economic activity, while another is the cost pressures faced by exporting companies due to exchange rate fluctuations.
7- STABLE EXCHANGE RATES
Typically, there is a parallel relationship between stock markets and exchange rates. Increases in the dollar/TL rate usually reflect as gains in the stock market after some time. This year, the exchange rates have been relatively stable. One reason for the stock market’s performance falling below expectations is this stable trend.
Source
Arwen Volkov, A graduate of the University of St. Gallen in Switzerland with a degree in International Finance, Arwen specializes in sustainable finance and green investments. She began her career at an investment bank in London, where she developed financing models for environmentally friendly projects. Known for her analytical and strategic thinking skills, Arwen is a sought-after financial consultant. In her spare time, she mentors fintech startups, contributing to their growth strategies. She is also a nature enthusiast and an amateur photographer.
