ISTANBUL: Turkyish stocks have quickly gone from being the world’s best performers to the worst, with the nation’s equity benchmark showing its weakest start to a year since the global financial crisis.

The benchmark Borsa Istanbul 100 Index was down 9.7% for the month at the close in Istanbul on Tuesday, marking its worst January since 2008 and the biggest monthly decline since the onset of the Covid-19 pandemic.

Political uncertainty has been a key driver of profit-taking following last year’s nearly 200% gain for the index, as presidential and parliamentary elections loom this year.

President Recep Tayyip Erdogan faces a tight race that could threaten his 20-year rule, the longest in Turkiye’s history.

The election, which was originally scheduled for June 18, but will likely be moved forward as hinted by Erdogan, is a pivotal moment for markets and foreign investors amid concerns over years of unconventional monetary policies.

That’s as Turkiye grapples with its worst cost of living crisis in decades amid rampant inflation, which surged to as high as 85% in 2022 before slowing towards the end of the year.

“Political uncertainties ahead of this year’s election, including regarding the date of the vote, and a rise in deposit rates have led to increased demand from investors to cash in on last year’s gains,” said ICBC Turkiye Investment’s Burak Isyar.

Deposit rates have edged higher recently as banks step up efforts to attract more lira savings to meet regulatory requirements. The weighted average rate for lira deposits with up to a three-month maturity was 24.6% during the week of Jan 20, the highest since October 2018, according to the latest official data.

This has likely helped divert some funds from equity markets, with deposit accounts still one of the most popular investment tools preferred by domestic investors.

While Turkyish stocks remain a useful hedge against scorching inflation for local investors, last year’s gains are seen as providing a buffer to take profit when sentiment turns.

“With high levels of leveraged positions, even relatively smaller declines lead to increased calls on margins and magnify the losses, making it hard to convince locals of a longer-lasting recovery. All that eventually also feeds into even more volatility as a result,” Isyar said.

 - Bloomberg