HSBC's Turkey Strategy Report: Stocks Undervalued, Sectoral Opportunities Shine

HSBC emphasizes that Turkish equities remain undervalued and, amid a low foreign turnover environment, maintains its recommendation to increase weighting.

HSBC's Market Outlook and Performance Review

■Compared to the FTSE Emerging Markets Index, BIST delivered 5% higher returns year‑to‑date, largely driven by gains in January‑February.

■Middle East geopolitical tension has delayed, not derailed, monetary policy normalization.

■The CBRT kept the one‑week repo rate at 37%, postponing monetary easing.

Sectoral Opportunities: Four Core Themes

■Defense Industry – Rising global defense spending and expanding Turkish export share.

■Infrastructure & Redevelopment – Levant projects, GCC megaprojects, and opportunities linked to Ukraine.

■Artificial Intelligence Infrastructure – US supply‑chain bottlenecks give Turkish transformer makers a competitive edge.

■Aviation – Gulf‑origin traffic boosts Istanbul’s market share and airport capacity.

Valuation, Liquidity and Foreign Flow Dynamics

■BIST’s forward P/E stands at 7.5, with an equity cost of 25%, indicating a very conservative stance relative to long‑term inflation expectations.

■Foreign ownership fell from 65% a decade ago to 33%; roughly $2 billion exited between March and June.

■Low positioning and attractive multiples underpin a long‑term positive outlook.

Risk Factors and Potential Scenarios

■Domestic political uncertainty: Early election debates could spark market volatility.

■MSCI’s November 2026 transparency requirement adds uncertainty about potential restrictions.

■Ongoing Middle East conflict may continue to shape investor sentiment.

HSBC analysts project that, should domestic positive trends persist, a September rate‑cut cycle could restart, with the market expected to remain in a narrow band before a sustained rally from Q4 2026 through 2027. In this context, defense, infrastructure, AI, and aviation emerge as the strategic sectors for increased weighting.