Foreign investors test Turkey’s waters after years in the cold

ISTANBUL, March 24 (Reuters) – Scores of foreign investors are returning to Istanbul and Ankara after years in the cold for a flurry of meetings to understand whether Turkish elections could bring a tidal change for its economy and financial markets.

According to several investors and bankers involved, large foreign lenders including BBVA (BBVA.MC) and BNP Paribas (BNPP.PA) organised trips and calls for clients to meet current Turkish policymakers and opposition officials and advisers.

President Tayyip Erdogan’s unorthodox policy approach, including aggressive rate cuts in the face of soaring inflation, left the economy and markets heavily state-managed and spurred an exodus of foreign investors over the last five years.

But after a two-decade reign, Erdogan and his ruling alliance are trailing in some polls ahead of the May 14 vote to an opposition that has pledged to ditch his policies and return to orthodoxy in the big emerging market economy.

The investor visits and conference calls have ramped up in recent weeks and will continue through April, garnering far more interest than in years past including before the COVID-19 pandemic halted much travel, the sources said.

One person familiar with the plans said a trip next week organised by Spanish lender BBVA includes clients representing some $1.5 trillion in debt-related assets across emerging markets.

“There is a jumbo-sized interest rate hike potentially coming in a relatively short period” if the opposition wins, the person said. Investors seek to understand “who will win, who will hold key positions and what the programme will be.”

BBVA, majority owner of Turkey’s Garanti Bank (GARAN.IS), declined to comment. French lender BNP, a big stakeholder in local lender TEB, said it would host its meetings next month.

‘STAR’ AMONG PEERS?

The foreign share of the Turkish lira-denominated bond market has fallen below 1% from more than 25% five years ago, government data show.

While some analysts expect that an opposition victory in the presidential and parliamentary vote would bring a sharp rally in the lira currency, others expect more uncertainty given that monetary tightening could slow economic growth.

Complicating any transition is the need to address the more than 100 financial regulations adopted since the latest currency crash in late 2021, and the expected personnel overhaul at the central bank, regulators and ministries, analysts say.

Wall Street bank Citi said it held two days of meetings in Istanbul earlier this month for its bond and equity investors. “The mood is hopeful for positive change” even as the atmosphere is “tense” over the vote outcome, it wrote afterward.

Another person familiar with an array of planned meetings said not only Western but Gulf-based investors are making inquiries about potential foreign direct investments, or FDI, rather than just financial assets.

A Western foreign investor who will visit Turkey soon said the group plans to listen to the opposition as much as possible but also meet central bank policymaker Mustafa Duman.

“It may be a good opportunity to rethink Turkey’s currently significant ‘underweight’ positioning among peer markets,” the investor said. “If there will be a star among emerging markets this year, it will be Turkey.”

The central bank declined to comment on any such meetings.

Additional reporting by Ebru Tuncay in Istanbul; editing by Mark Heinrich

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