Trust is slowly won but quickly lost. It has taken several years for Turkey to regain the confidence of international investors after president Recep Tayyip Erdo?an’s unorthodox economic policies stoked massive inflation. News on Wednesday that the president’s main political opponent has been detained by local police will undo much of that work.
The Turkish lira dropped more than 10 per cent before reversing some of the losses. The benchmark Bist 100 index fell 9 per cent, while its benchmark local currency bond had its worst day since 2023.
The timing of Wednesday’s sell-off is particularly painful for international investors, who had been increasing their exposure to Turkish assets. Foreign holdings of Turkish bonds and stocks increased 50 per cent over the 12 months to March 7, to around $54bn, according to data from the Turkish central bank and Bloomberg. That is more than triple the low point hit in 2022.