The recent political turmoil in Turkey has started to affect fund flows, with research from Bank of America Merrill Lynch indicating that investors are losing some conviction inthe country and are reducing their allocation.
“Turkey’s short-term vulnerability to rising bond yields and political disruption is clearly evident in funds flows, which have struggled to recover at the same pace they achieved earlier in the year,” the report says.
Investors have cut their overweights each month this year, the only exception being March. The proportion of global emerging market funds that were overweight Turkey by 5% or more, compared to the benchmark, is now at the lowest level since July 2011.
Wesley Fogel and Michael Harris, both equity strategists, who compiled the report, say May data from the Istanbul Stock Exchange also shows the pace of net foreign buying continues on a slowing trend.
They say this is likely to weigh further on the market in coming weeks.
Managers of global emerging market funds have historically favoured Turkey among other markets in the region, although the recent numbers show this is changing.
Recent protests against redevelopment plans of an Istanbul square turned into protests against the leadership of Recep Tayyip Erdogan and his Islamist-leaning Justice and Development (AK) Party. They have spread from Istanbul to several other cities in the country, including the capital, Ankara.
Turkey’s handling of these protests has raised doubts over whether it will ever be admitted into the European Union, with Germany proposing a delay of membership talks.
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