With sinking inflation and upward growth rates, the Istanbul Stock Exchange is dominated by an atmosphere of optimism. Experts predict the good times will continue, even if Turkey is denied entry into the EU.
There's lots of activity on the Istanbul Stock Exchange
Turkey stands at the threshold of another chapter in its long history with Europe. On Friday, the EU will decide whether or not to approve the start of official accession talks, paving the way for Turkey's entry into the union. And while the EU's decision has monopolized the general public's interest in recent months, there's another Turkish story making the rounds: The Istanbul Stock Exchange's (ISE) growth has captured investor's attention.
There's a good reason for that. From the end of 2003 to the start of December in 2004, the value of the National-100-Index of the ISE increased by almost 25 percent, from 18,625 points to 23,000. And the volume of exchange increased almost threefold.
Two factors are being credited for the ISE's success. For one, falling inflation rates and ever-increasing growth rates have helped spur the economy. Secondly, Turkey's potential entry into the EU has excited foreign investors, particularly in recent months when a yes vote seemed more likely.
The Turkish Lira
Investors are undoubtedly excited by Turkey's remarkable economic transformation. Just a few years ago, inflation rates hovered at around 100 percent, and a currency reform, instituted at the prompting of the International Monetary Fund (IMF), was necessary to contain the crisis.
Now, inflation rates are a comparatively low 10 percent, and experts predict they could decline even further in 2005. Meanwhile, a 5 percent growth rate is additional good news.
"In recent years, Turkey has achieved a dramatic transformation," Manfred Zourek, a fund manager at Austria-based Erste Sparinvest, told Deutsche Welle. He administrates one of the few funds available in Europe that deals exclusively in Turkish stocks. "The times of hyperinflation are over," he added.
EU entry a limited factor
The EU will decide on Turkey's bid to join the union
Surprisingly, the EU's decision whether or not to grant Turkey entry will have only a moderate impact on the ISE, according to experts. A "yes" will surely be noticeable on the exchange, though only moderately, while a "no" vote will not result in huge losses, Baris Büyükdemir, the manager of Turkish funds for the Germany-based Ceros, told Deutsche Welle
"The overall positive economic development will continue," he said.
Nonetheless, a "yes" from Brussels could function as a positive signal to foreign investors, who may be more inclined to invest in ISE stocks if they are assured of having more influence on Ankara politics.
Despite the euphoria, risks remain. At almost 5 percent, the current account deficit is relatively high. What's more, imports outpace exports and public debt is high. "Investors will need to keep an eye on that," Zourek said. "But if the positive trend continues, there's no reason to worry about the EU's decision."