Broad exposure insufficient to capture Turkiye’s market rebound opportunities, says CIO

After years of currency turbulence and runaway inflation, Ankara's hawkish monetary pivot is beginning to bear fruit. Yet Islamic fund managers with boots on the ground say the opportunity is far more nuanced than headline valuations suggest, and that selectivity, not sweep, is what will determine winners.

Dr Bayram Veli Salur, the chief investment officer (CIO) at Kuveyt Turk Portfoy, one of the world’s largest Islamic fund managers managing some US$8.5 billion, said inflation remains one of the defining forces shaping market dynamics and portfolio positioning in Turkiye.

“While inflation may create strong nominal returns, it also negatively affects valuation multiples due to uncertainty around long-term pricing, discount rates and macroeconomic visibility,” Dr Bayram told IFN Investor.

Turkish equities trade at a discount to most emerging-market peers, a gap that partly reflects the country's elevated risk premium. But that discount is narrowing. Inflation, while still high, is on a gradual downward trajectory. Country risk premiums are easing. And the broader macroeconomic normalization underway in Ankara is lending a constructive, if cautious, medium-term tone to the equity outlook.

Turkiye’s central bank has maintained a relatively hawkish monetary stance in recent quarters as policymakers attempt to stabilize inflation expectations and restore confidence in the lira. However, higher rates have also intensified competition between participation equity funds and lower-risk cash and money market instruments.

Dr Bayram noted that elevated rates are creating increasingly selective market conditions, particularly within equities.

“Dispersion across sectors and companies can be significant in Turkiye, making active management especially valuable,” the CIO said, adding that actively managed participation funds may offer a more effective way to navigate this environment than broad passive exposure.

“In the short term, elevated real interest rates may limit the pace of equity market appreciation. Strong returns from money market instruments and fixed-income alternatives increase the opportunity cost of taking equity risk, which may temporarily constrain market upside.”

Turkish participation funds remain heavily exposed to sectors such as banking, industrials, exporters and manufacturing, many of which respond differently to inflation and currency movements. While some companies benefit from pricing power and export competitiveness, others face margin compression and financing pressures.

Dr Bayram also framed Turkish participation funds not as substitutes for global Sukuk or Islamic equity allocations, but as satellite positions - selectively managed, actively monitored exposures to a large, underpenetrated market with meaningful upside.