EQUITABLE FUTURES

Turkey 2016 | FINANCE | REVIEW: CAPITAL MARKETS

By gradually increasing its wares, the BIST has become a comprehensive address for investment in a country on the up and up.

The Istanbul Stock Exchange (ISE)—the roots of which stretch back to the late 19th century—is Turkey's sole provider of trading, settlement, custody and registry services for a comprehensive portfolio of instruments including equities, debt securities, repo, (a recently impressive) sukuk issuance, options, futures, and exchange traded funds (ETFs). Among the landmark refinements to the BIST's offering, was the 2013 launch of the Precious Metals and Precious Stone Markets. The ISE, established in 1986, was re-launched as Borsa Istanbul (BIST), a majority state-owned entity, on April 3, 2013 with the first bell struck on April 5, 2013. It arose from a merger of the ISE and the Istanbul Gold Exchange, and the subsequent additions to its offering have been regular and striking. In April of 2015 Board Member Tuncay Dinç was appointed its current CEO.

FORCE OF INNOVATION

Turkey in 2015 is acknowledged as a major global mover and shaker, being Europe's sixth largest economy and 16th in the world, not to mention the world's 14th most attractive FDI address according to UNCTAD. Over the years the BIST has weathered domestic economic volatility, regional strife and political vicissitudes to emerge as a dynamic financial powerhouse predicated upon perpetual innovation.

NO IPO? NO PROBLEM

IPOs, too have been apparent, where the 93 realized between 2010 and 2013 amounted to $4.1 billion, while the two SPOs realized in 2012 to 2013 generated $4 billion. In Turkey, SMEs account for over 90% of businesses, and therefore often encapsulate businesses of innovative significance, but lean financial muscle. Entrepreneurs—without the need to go public—gained their own venue to hunt capital for startup ventures with the introduction of the Private Market Platform, described by erstwhile BIST Chairman & CEO, İbrahim Turhan as; “…The world's first private market to be created by a securities exchange from scratch." Recognition was swift, when in March 2015 the third annual Turkey Innovation Week sponsored by the Turkish Exporters' Assembly (TİM) named it the “Most Innovative Enterprise of the Year."
Meanwhile, the BIST has also launched its “Listingİstanbul" Program, the portmanteau term for its overall promotion, marketing and communicating schemes geared at encouraging foreign securities to become listed. The program's 18 partners with a footprint across 47 countries in seven regions (West and Central Europe, Eastern Europe, the Balkans, Central Asia, Asia-Pacific, MENA, and Sub-Saharan Africa) again underlines the bourse's ambition of becoming a global financial center. That, of course, will culminate in the rise of the Istanbul International Financial Center (IFC-İstanbul) Project; a separate financial hub is to be constructed on the Asian side of the city, whereupon numerous financial bodies are expected to relocate from the capital city of Ankara.

Enter the EBRD

Landmark external interest in the BIST manifested in May 2015 when the European Bank for Reconstruction and Development (EBRD) commenced exclusive negotiations for the purchase of a 10% stake. The deal confirms Turkey's international success in having transformed its capital markets into a sustainable appetizing investment address. The IPO deal is earmarked for 2016 and is effectively a springboard for the BIST's ambition of becoming a regional finance hub in terms of market capitalization (MCap) and range of listed stocks. In 2014 Turkey was the leading EBRD recipient, amassing fresh investments of $1.6 billion.



AND ON…AND ON…

Working to foster greater corporate transparency, while systematically raising awareness and corralling Turkey's environmentally aware listed businesses, is the BIST Sustainability Index. The index seeks to ensure that Turkey's sustainability activities occur, “…in a result-oriented and effective way [with the] joint steps to be taken in this regard to be discussed," according to the BIST. Comprising 15 companies the BIST Sustainability Index is appraised on the basis of international sustainability criteria, and today ranks 11th in the Sustainable Stock Exchanges Index.

R&D

Education underpins the professionalism that is a byword for the progression of Turkey's capital markets. A key project in this light is the Finance Technopark JV between BIST and leading center Turkish institution Boğaziçi University. Resulting software and information technology fed into Turkey's financial markets will keep them at the cutting edge.

Another aspect of BIST's innovative urge has been expansion, and the BIST is a shareholder in the Stock Exchanges of Sarajevo, Baku, Kyrgyz Republic, Montenegro, and LCH. Clearnet, the European-based independent clearing house that serves major international exchanges.

SUKUK

As part of efforts to also become a regional giant in Participation finances, on November 28, 2014 the Islamic Development Bank, wherein the Turkish Treasury is a shareholder, listed sukuk (lease certificates) of $10 billion at the BIST to qualified subscribers. According to the BIST, “On a global scale only 38 million people take advantage of Participation financial instruments and only 17% of the 1,800 issued lease certificates are traded in organized markets." Therefore, bringing such a deal to the BIST was both a coup and confirmation of the instrument's potential in organized markets of greater trading volumes.


QUITE THE PERFORMANCE

In early 2014 political ructions dented investor sentiment at the BIST; this in addition the eagerly anticipated local and presidential election later in that year. Multiple macro concerns, too, including declining growth due to a curb on credit spending further dampened the mood. Yet following AKP success at both elections, political clouds parted. Pronounced 1Q2014 sales that had taken the benchmark 100-index to January's low of 61,000 were duly reversed as the index rebounded to close 2014 at 85,721 on a sterling 26.4% YoY gain, outperforming the MSCI EM index by 18.4% YoY, and the MSCI EMEA benchmark by 29.4% YoY. By yield the BIST ranked among the top-five performers of the year, where the Buenos Aires Merval Index won out on a formidable 59.13% appreciation. The powerhouse sectors of 2014 by returns were steel, yielding a 66% YoY absolute return, followed by construction on 40% and aviation on 39%.

In May the BIST was evidencing pre-election volatility, as the benchmark BIST-100 Index fluctuated between 81,750-88,600 ending the month down 1.2% at 82,981. Despite having decoupled from global peers, MoM it nonetheless respectively outperforming the MSCI EM and MSCI EMEA indices by 3.7% and 6.1%. And with the June 7 elections ending 13 years of one-party rule the BIST 100 saw a pronounced, if predictable 5.05% decline on the subsequent Monday, closing at 77,805 on a turnover of TRY 4.7 billion.

FOREIGN ACTIVITY

Some argue that the low oil price environment is insufficient grounds for global growth—indeed, the IMF's January 20th, 2015 update to the October 2014 World Economic Outlook (WEO)revised global growth projections down by 0.3% for 2015 and 2016 to a respective 3.5% and 3.7%. Yet interest in emerging markets has by no means vanished. By YE2013 the equity portfolio holdings of international investors at the BIST had reached $56.2 billion. Foreign ownership troughed at 61.14% in February 2014 amid rising political noise. Yet it peaked in July, post presidential elections, at 64.43% buying into the idea of political continuity. For 2014 overall, foreign investors turned out to be net sellers of $2.2 billion—this amounted to 0.90% of the BIST National Index MCap of $237bn, as of January 23rd, 2014. Fast forward to April 2015 though, and foreign investors had become net buyers of Turkish equities to the tune of $532 million. The top-five most bought stocks were Vakifbank on $83mn, followed by Turkcell, Enka Insaat, Turkish Airlines and Erdemir. Meanwhile, the top-five most sold names were Vestel Elektronik on net sales of $15 million, followed by electronics and household giant Arcelik, retailer Migros, Akbank and Dogus Oto.

OTHER PRINTS

In the late summer of 2013 the trading platforms of TURKDEX and the Borsa Istanbul Derivatives Market (VIOP) merged, whereby futures and options contracts became tradable on a single platform at the VIOP. And in December of the same year, the VIOP scaled a historic daily trading value peak of TRY 3.2 billion as interest ramped up. Daily average trading value stood at $1.37 billion taking the total trading print as at end-2013 to $76.17 billion, with gold trading volume 437.8 tons and silver trading volume 465.6 tons.

The BIST, a vibrant investment hive, has an exciting tomorrow to look forward to, and the infrastructure in place to deliver, so long as global events are broadly benign and local conditions predictable.