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<\/p>\nBritish banking giant HSBC maintains its positive view on Turkish equities, saying Tuesday that tensions in the Middle East have delayed, but not derailed, the country’s monetary policy normalization.<\/p>\n
In a strategy report, HSBC Global Investment Research said Turkish assets remain attractively valued despite recent market volatility and that they have outperformed the FTSE Emerging Markets Index by around 5% since the start of the year.<\/p>\n
The bank noted, however, that most of those gains were recorded in January and February, with the market trading in a relatively narrow range after the outbreak of war following joint U.S.-Israeli attacks on Iran in late February.<\/p>\n
Higher oil prices have weighed on inflation expectations and prompted the Central Bank of the Republic of T\u00fcrkiye (CBRT) to keep its one-week repo rate unchanged at 37% for four straight months, postponing the start of its monetary easing cycle.<\/p>\n
T\u00fcrkiye’s annual inflation eased for a second consecutive month to 31.75% in July, official data showed Monday.<\/p>\n
Policymakers are watching inflation data and geopolitical developments before shifting the rates path.<\/p>\n
Despite the delay, HSBC’s economists said interest rate cuts could resume as early as September if domestic economic conditions continue to improve.<\/p>\n
HSBC expects Turkish equities to remain range-bound for the next few months before entering a more sustained rally beginning in the fourth quarter of 2026 and continuing through 2027.<\/p>\n
4 structural growth themes<\/p>\n
The report argues that T\u00fcrkiye offers several long-term structural investment opportunities that are not solely dependent on macroeconomic conditions or renewed foreign capital inflows.<\/p>\n
HSBC identified four sectors with the strongest long-term investment potential:<\/p>\n
\tDefense, supported by rising global military spending and T\u00fcrkiye’s growing defense exports. \tInfrastructure and reconstruction, driven by rebuilding efforts in the Eastern Mediterranean, large-scale Gulf infrastructure projects and potential opportunities in Ukraine. \tAI infrastructure, where Turkish transformer and electrical equipment manufacturers are benefiting from supply bottlenecks and long delivery times in the United States. \tAviation, with Istanbul expected to gain market share as airlines increasingly reroute traffic through Gulf aviation hubs. <\/p>\n
Valuations remain attractive<\/p>\n
HSBC said Turkish equities continue to trade at attractive valuations despite a sharp decline in foreign investor participation.<\/p>\n
According to the report, foreign ownership on Borsa Istanbul has fallen from around 65% a decade ago to 33%, while overseas investors withdrew roughly $2 billion from Turkish equities between March and June.<\/p>\n
The bank argued that low foreign positioning and inexpensive valuations continue to support its constructive long-term outlook.<\/p>\n
HSBC noted that Borsa Istanbul is trading at a 12-month forward price-to-earnings ratio of 7.5, while the market’s implied 25% cost of equity appears overly conservative relative to long-term inflation expectations.<\/p>\n
The bank reiterated its “overweight” recommendation on Turkish equities.<\/p>\n
HSBC also flagged several risks to its outlook, including the potential for domestic political uncertainty if early election discussions emerge.<\/p>\n
The report added that investors are monitoring whether T\u00fcrkiye meets MSCI’s requirement to improve free-float transparency by November, although HSBC said it expects recent regulatory steps to prevent any potential restrictions related to the country’s market classification.<\/p>\n
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