Strong demand for IPOs in Turkey as investors seek inflation hedge

Turkish stock buyers are again piling into new share offerings by companies, lured by the promise of jumbo returns as they clamour for ways to shield against resurgent inflation.

There has been a string of initial public offerings that have been met with intense demand, with two this month drawing 2.6 million investors apiece, a record for any Turkish company.

And given the backdrop of demand, 31 companies have come to market this year.

The domestic retail investors attracted to those deals are part of a cohort of Turkish share-owners that has more than doubled to 5.9 million over the past year, according to data from the central securities depository.

The immediate lure is the prospect of big returns. Two thirds of the stocks that made their debut this year soared more than 60 per cent in their first five trading days, while only three fell in their first week.

But also fuelling the latest uplift in demand is a jump in the inflation rate to 47.8 per cent, spurred by the lira’s sharp depreciation after elections in May.

The surge in consumer prices is adding to the allure of equities as a way to offset erosion of the real value of savings as living costs rise.

The trend for investors in high-inflation countries with weak currencies to seek value in stocks is not unusual. A similar pattern has also played out in countries including Egypt and Argentina.

In Turkey, the phenomenon is giving fresh impetus to a buying frenzy that has seen the Borsa Istanbul IPO Index, which tracks stocks that have listed in the past two years, soaring 3,904 per cent since the start of 2020.

Meanwhile, the best-performing stock on the benchmark Borsa Istanbul 100 Index this year is electronic equipment maker Astor Transformator Enerji Turizm Insaat ve Petrol Sanayi Ticaret, up 972 per cent since its debut in January.

Among the most recent offerings, shares in power firm Izdemir Enerji Elektrik Uretim are up 46 per cent since they began trading on August 16. Utility Enerya Enerji is due to start trading on August 23.

At the same time, tighter access to costlier funding has made raising money with an IPO a more attractive option for Turkish companies.

Firms have raised more than 41 billion liras ($1.5 billion) so far in 2023, a record amount in local currency terms, according to Turkish Capital Markets Board data.

New listings are “juicy because their returns are at least 70 per cent”, said Betul Seckin, 31, who has been investing in shares for the past 18 months as a way of bringing in extra income.

“There’s almost no risk in betting on IPO stocks compared to others.”

Ms Seckin says she takes profits once a rally in a newly traded stock starts to subside, though says she plans to hang on to her shares in energy firm IPOs as a longer-term investment for her child.

The surge in interest in IPOs from Turkish mum-and-dad investors is not without risks, however.

“Most of the IPO investors are short-term, looking for rather an adventure and to earn a few bucks,” said Mehmet Gerz, chief investment officer at Ata Portfoy broker and a member of the board of Turkey’s Financial Literacy and Inclusion Association.

“Some of these people end up having a traumatic experience and forgoing equities for years.”

Demand for IPOs flagged around the time of the elections as lira deposit rates jumped and investors waited for more clarity on the direction of policy.

Since then, President Recep Tayyip Erdogan’s appointment of two former Wall Street bankers to run the country’s finances has added to the appeal of stocks as they flag a gradual return to more orthodox economic policies.