Turkish Investors Hunting for Inflation Hedge Rush Back to IPOs

Turkish stock buyers are again piling into new share offerings by companies, lured by the promise of jumbo returns as they clamor for ways to shield against resurgent inflation.

(Bloomberg) — Turkish stock buyers are again piling into new share offerings by companies, lured by the promise of jumbo returns as they clamor for ways to shield against resurgent inflation.

There’s been a string of IPOs that have been met with intense demand, with two in August drawing 2.6 million investors apiece, a record for any Turkish company. And given the backdrop of plentiful demand, 31 companies have come to market this year.

The domestic retail investors attracted to those deals are part of a cohort of Turkish share-owners that has more than doubled in size to 5.9 million over the past year, according to data from the central securities depository. 

The immediate lure is the prospect of big returns. Two thirds of the stocks that made their debut in 2023 soared more than 60% in their first five trading days, while only three fell in their first week.

But also fueling the latest uplift in demand is a jump in the inflation rate to 47.8%, spurred by the lira’s sharp depreciation after elections in May. The surge in consumer prices is adding to the allure of equities as a way to offset erosion of the real value of savings as living costs rise.

The trend for investors in high-inflation countries with weak currencies to seek value in stocks isn’t unusual. A similar pattern has also played out in countries including Egypt and Argentina.

In Turkey, the phenomenon is giving fresh impetus to a buying frenzy that has seen the Borsa Istanbul IPO Index, which tracks stocks that have listed in the past two years, soaring 3,904% since the start of 2020.

Meanwhile, the best-performing stock on the benchmark Borsa Istanbul 100 Index this year is electronic equipment maker Astor Transformator Enerji Turizm Insaat ve Petrol Sanayi Ticaret AS, up 972% since its debut in January.

Tighter Conditions

Among the most recent offerings, shares in power firm Izdemir Enerji Elektrik Uretim AS are up 46% since they began trading on Aug. 16. Utility Enerya Enerji AS is due to start trading on Aug. 23. 

At the same time, tighter access to costlier funding has made raising money with an IPO a more attractive option for Turkish companies. 

Firms have raised more than 41 billion liras ($1.5 billion) so far in 2023, a record amount in local-currency terms, according to Turkish Capital Markets Board data.

New listings are “juicy because their returns are at least 70%,” said Betul Seckin, 31, who has been investing in shares for the past 18 months as a way bring in extra income. “There’s almost no risk in betting on IPO stocks compared to others.” 

Seckin says she takes profits once a rally in a newly-traded stock starts to subside, though says she plans to hang on to her shares in energy firm IPOs as a longer-term investment for her child.

The surge in interest in IPOs from Turkish mom & pop investors isn’t without risks, however.

“Most of the IPO investors are short-term, looking for rather an adventure and to earn a few bucks,” said Mehmet Gerz, chief investment officer at Ata Portfoy brokerage and a member of the board of Turkey’s Financial Literacy and Inclusion Association. “Some of these people end up having a traumatic experience and forgoing equities for years.”

Demand for IPOs flagged around the time of the elections as lira deposit rates jumped and investors waited for more clarity on the direction of policy.

Since then, President Recep Tayyip Erdogan’s appointment of two former Wall Street bankers to run the country’s finances has added to the appeal of stocks as they flag a gradual return to more orthodox economic policies.

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