US-based investment bank Morgan Stanley, in its Turkey report titled "Macro Gravity is a Denier," indicated that the strong rise in the Istanbul Stock Exchange has detached from macroeconomic fundamentals. Analysts warned that Turkish stocks, which have rapidly gained value since the beginning of the year, carry a risk of correction in the short term.
Redaksiya reports that the report emphasized that Turkish stocks have been sharply repriced since the beginning of the year, but this movement does not align with the outlook in the bond market. While the stock market has experienced a multiple expansion, the fact that the two-year benchmark bond yield has not shown significant change in the same period indicates that there has not been a clear improvement in macro expectations. It was reported that the MSCI Turkey Index has provided a total return of 25 percent since the beginning of the year in US dollar terms, ranking it second best in the EEMEA region and fifth globally. However, it was stated that this performance is largely due to multiple expansion. The forward P/E ratio of BIST 100 rose from 5.9x to 7.6x. According to analysts, the current multiple prices in a much stronger disinflation process than the market implies. Meanwhile, there is no signal of meaningful improvement in interest rate cuts or inflation outlook in the bond market. For this reason, it is assessed that stock securities may experience a downward adjustment towards more cautious macro expectations.
The report highlighted that inflation is the main determinant in Turkey's asset valuation. It was recalled that historically there has been a strong correlation between stock multiples and inflation expectations. It was calculated that the current forward P/E ratio of 7.6x implies an inflation assumption of approximately 10 percent for 12 months ahead. This level is well below the general expectations of market participants. Within this framework, it is stated that short-term risks are downward, and it was noted that the stock market could face pressure if the February inflation data comes in above expectations. Furthermore, a warning was issued that rising oil prices due to geopolitical tensions in the Middle East could slow down the disinflation process in Turkey and increase the risk premium.
While maintaining its cautious stance for the general index, Morgan Stanley sees relatively higher potential in the banking sector. Analysts calculated that Turkish banks are trading at a 47 percent discount to the market based on their forward P/E ratios. The multiple for banks is at 4.0x, while the general market is at 7.6x. It was emphasized that for a sustainable repricing, real equity profitability (ROE adjusted for inflation) needs to turn consistently positive. Although expectations have been in the positive territory since 2025, it was stated that realized data has not yet confirmed this recovery. It is projected that 2026 could be a sustainable threshold in terms of real ROE, and 2027 could be a period of strengthening. Citing historical relationships, Morgan Stanley stated that if real ROE expectations are maintained, banks could rise to a 1.2x P/DD multiple, which represents an approximately 50 percent upside potential compared to the current 0.8x level.
The report stated that the increase in risk appetite for emerging markets has also accelerated foreign inflows into Turkish stocks. However, it was indicated that if this interest is largely driven by the search for portfolio diversification in a weak US dollar environment, Turkish companies with a domestic demand focus may not benefit sufficiently from a strong TL. It was noted that the controlled exchange rate policy monitored by the Central Bank of the Republic of Turkey and the high real interest rate environment are suppressing domestic demand, and downward risks on corporate earnings forecasts continue. Within this framework, it was assessed that recent foreign inflows might be premature.
On the macro side, it was stated that Turkey still stands out with its carry strategy. It was reported that the upward inflation surprise in January pushed up final interest rate expectations; on the other hand, the Central Bank's communication signaled satisfaction with the current easing path. Although a limited retreat in inflation expectations was observed, it was stated that geopolitical risks create an additional risk premium on the cross-currency exchange rate curve. It is projected that this premium could recede if these risks decrease. Noting that high-frequency indicators point to a stronger picture for February inflation, Morgan Stanley announced that it continues to prefer currency carry positions over stock securities in the near term.