ISTANBUL: Turkiye’s newest stocks are trailing the broader market for the first time in six years, prompting worries about investor appetite for initial public offerings (IPO).

The Borsa Istanbul IPO Index of companies listed in the past 24 months is up 12% this year, far less than the 33% gain in the benchmark Borsa Istanbul 100 Index.

Tighter domestic monetary policy has taken some of the shine off IPOs for locals, pushing them to favour more established stocks or the interest they can earn on bank deposits.

The underperformance risks fuelling a cycle of fading demand, said Berra Doganer, an industry veteran and IPO adviser, who is also on the board of broker Piramit Securities.

“Some newly listed stocks fell in their first day of trading, and that has shattered the perception that IPOs are guaranteed wins,” Doganer said. Because demand is lower, “we’re also not seeing rallies that last for 10 days following the trading debut”, she said.

The Turkish IPO market has proved wildly popular in recent years, as local mom-and-pop investors piled into stocks to try and prevent soaring inflation from ravaging their savings.

The new-listings index tripled in 2020 and jumped almost fourfold in 2022.

But those spectacular gains have faltered since Turkiye’s central bank tightened monetary policy. The bank’s measures have made returns on alternative and less risky assets - such as deposit accounts - more attractive.

Another side effect of higher borrowing costs has been their impact on corporate profits, which has flowed through to the stock market. The main Istanbul index posted the worst performance among global equity markets in August.

So, even if domestic investors remain keen on stocks, many are now sticking with better-known companies, rather than risking their money on newcomers.

“With the expected slowdown in the Turkish economy and its impact on company earnings, people prefer investing in stocks they already know, that have been listed for a while, as they see them as safer bets,” said Mehmet Gerz, head of ATA Portfoy, an Istanbul-based asset manager.

The speculative demand that characterised the Turkish market in recent years is retreating, which Gerz said is a sign of normalisation.

After 56 companies went public in Turkiye in 2023, at least 28 have listed on the Istanbul stock exchange this year.

 - Bloomberg