During the era of ultra-low interest rates، Turkey’s stock exchange became the preferred way for residents to protect their savings from surging inflation. Now، with tighter monetary policy seen lasting well into next year، the equities boom is fading fast.

The trade idea was simple: bank deposits based on single-digit central bank interest rates amid 80% inflation will always be a losing proposition. By investing in stocks، Turks could at least hold out hope that their capital isn’t eaten away as quickly. 

The massive inflows that followed turned Turkey’s stocks into star performers، with the Borsa Istanbul All Shares Index soaring 440% since the end of 2021. And the upturn was widely appreciated، with the number of individual equity accounts jumping more than threefold to 8.6 million last October — meaning that one in three Turkish households invested in stocks.

Reversed course

But the good times، at least for equity investors، are ending as President Recep Tayyip Erdogan reversed course following last year’s reelection and embraced more orthodox policies. His economics team has hoisted interest rates to 50% in a bid to curb inflation، and looks set to keep them high for months to come. 

This elevated the rate on three-month lira deposits to as much as 69% in April، effectively derailing the risk-reward proposition of owning stocks.

“Luckily، I got out of the market just in time two months ago،” said Betul Seckin، 32، a software specialist in Izmir، some 480 kilometers (298 miles) southwest of Istanbul. “I put all my money into lira deposit accounts.” 

Seckin isn’t alone، with the Borsa Istanbul All Shares Index losing 6.8% during the third quarter، even as the benchmark MSCI Emerging Market stock index advanced 4.6%. The number of Turkish equity accounts is also declining.