Turkey is one of the most interesting, yet volatile emerging countries. With a key role between Europe, Asia, and the Middle East, the potential of this country is immense. We analyze the 4 most important stock market indexes in Turkey.
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Introduction
If we had to choose an emerging country with plenty of potential, everything in its favor, yet not completely taking off, we would probably think of Turkey.
Turkey has a population as large as Germany’s, with over 80 million people, but with a much younger average age. It also has one of the largest cities in the world: Istanbul.
From a geographical and cultural perspective, Turkey can take advantage of its proximity and trade relations with Europe, including Russia, Asia, and the Middle East. Therefore, a rich Turkey would have massive influence in the world.
However, the Turkish economy, while it has made significant progress over the past few decades, has not met expectations. As a result, its stock market has performed very poorly since the 2008 financial crisis. This can be attributed to both internal and external issues.
For international investors, one of the biggest risks when investing in Turkey is the currency risk. The Turkish Lira (TRY) has been depreciating heavily for several years. And the monetary policy measures taken have not been able to put an end to the large trade deficits the country suffers.
A depressed currency usually means that the country’s companies look cheap for many investors. The question is whether Turkey will be able to stabilize its economy and the value of its currency in the medium term.
Additionally, because nominal interest rates are so high, hedging the currency risk in Turkey is extremely expensive.
For those who are optimistic about its future, investing in Turkey through an ETF is usually a good idea, as they do not have to choose companies individually. In the next few sections, we analyze the most important stock market indexes in Turkey:
BIST 30
The BIST 30 is one of the two main stock market indices of the Istanbul Stock Exchange. BIST is short for Borsa İstanbul (Istanbul Stock Exchange).
As its name indicates, the BIST 30 is made up of 30 of Turkey’s largest publicly traded companies. Therefore, we can find stock with good liquidity levels.
This also means that the BIST 30 is mainly composed of large and midcap companies. Although bear in mind that capitalization levels in Turkey are much lower than those of developed countries.
If you want to read additional information about the BIST 30, here is the link to the official website of the Istanbul Stock Exchange.
BIST 100
The other major stock index calculated by the Istanbul Stock Exchange is the BIST 100.
As you can imagine, the BIST 100 is made up of 100 of the largest listed companies in the country, therefore including many small-cap stocks.
If we are optimistic about the future of Turkey’s domestic economy, and not just its largest corporations, the BIST 100 may be a better proxy than the BIST 30.
Although, because the large companies of the BIST 30 are the ones that have the highest weighting in the BIST 100, the correlation between both stock indices is high.
MSCI Turkey
The US company MSCI calculates its own stock index for Turkey, the MSCI Turkey.
The MSCI Turkey is composed of all Turkish companies that are part of the global MSCI Emerging Markets stock index.
Because the criteria for inclusion in the MSCI Turkey are set by the criteria of the MSCI Emerging Markets, we must take a few things into account.
First, the number of stocks in the MSCI Turkey is not constant but fluctuates over time. This depends on how many Turkish companies meet the minimum threshold for market capitalization to be included in the MSCI Emerging Markets index.
Due to the poor performance of Turkey’s stock market, as well as the declining value of its currency in international markets, the number of Turkish companies in the MSCI Emerging Markets has been declining over the last few years. As a result, the MSCI Turkey has only 10-15 companies.
This means it is a fairly concentrated index, allowing us to invest mainly in large cap stocks. Nevertheless, the MSCI Turkey is an index often tracked by ETF providers and hence a good option to consider.
For more details, here is the official link to the MSCI website.
FTSE Turkey
FTSE Russell, a subsidiary of the London Stock Exchange responsible for calculating stock market indices, also has its own index for Turkey, the FTSE Turkey.
Very similar in logic to the MSCI Turkey, the FTSE Turkey is composed of all Turkish companies that are also part of the global FTSE All World Index.
For this reason, the number of stocks within the FTSE Turkey fluctuates over time. And in this case as well, the number of companies has been declining in recent years due to poor market performance and a depreciating currency.
This index can be another good alternative for those who want to invest passively in Turkey through an ETF.
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