Turkish investors are turning to initial public offerings (IPOs) with renewed vigor as a defensive measure against the looming threat of resurging inflation. The Turkish stock market is witnessing a surge in retail investors eagerly embracing new share offerings, drawn by the potential for substantial gains in an economy grappling with rising consumer prices.
August has proven to be a pivotal month for IPOs in Turkey, witnessing a string of offerings that have garnered unprecedented interest. Notably, two companies that went public in August managed to attract a record-breaking 2.6 million investors each, a feat that stands as a testament to the fervent appetite for new investment opportunities. Capitalizing on this demand, a total of 31 companies have entered the market this year alone.
This heightened interest from domestic retail investors is mirrored in the remarkable growth of Turkish share ownership, which has surged by more than twofold over the past year to reach an impressive 5.9 million, as per data from the central securities depository.
While the immediate appeal of IPOs is undoubtedly the potential for handsome returns, another factor driving this surge is the surge in the inflation rate, which currently stands at a staggering 47.8%. The sharp depreciation of the Turkish lira following the May elections contributed to this alarming increase in consumer prices. In such a scenario, investors are finding equities increasingly attractive as a means to protect the real value of their investments against the erosion brought about by rising living costs.
The trend of investors seeking refuge in the stock market during periods of high inflation and currency weakness is not exclusive to Turkey. Similar patterns have been observed in countries like Egypt and Argentina, where volatile economic conditions have propelled investors towards stocks as a safe haven.
This renewed interest in IPOs is driving a buying frenzy in Turkey, with the Borsa Istanbul IPO Index, which tracks stocks listed in the past two years, soaring an astonishing 3,904% since the start of 2020.
Among the recent offerings, shares in Izdemir Enerji Elektrik Uretim AS, a power company, surged by 46% within days of their trading debut on August 16. Meanwhile, utility firm Enerya Enerji AS is gearing up for its own trading debut on August 23.
The allure of IPOs is further bolstered by the tightening access to funding, which has driven Turkish companies to consider raising capital through IPOs. In 2023, these companies have successfully raised a record 41 billion Turkish liras (approximately $1.5 billion) in local currency terms, according to data from the Turkish Capital Markets Board.
However, it’s important to acknowledge that the current trend also carries inherent risks. The speculative nature of short-term investments driven by the excitement of IPOs can lead to disillusionment, and some investors might opt to steer clear of equities for a significant period following unfavorable experiences.
As the interest in IPOs continues to surge, it aligns with President Recep Tayyip Erdogan’s strategic move to appoint former Wall Street bankers to oversee the country’s financial policies. This development adds another layer of appeal to stocks, indicating a gradual shift towards more conventional economic practices that might foster stability and attract sustained investor confidence.
