With expectations of the annual inflation in Turkiye moderating way below 50% in coming months, asset manager KT Portfoy CEO Hamit Kutuk told IFN Investor that cash inflow into funds should be ramping up among both local and foreign investors.
Noting that returns from Turkish equities averaged about 45% in the past two years, “if inflation decreases to 30% in next year… this creates big returns for investors”.
Hamit said interest in investment returns skyrocketed after the pandemic as returns from normal banking deposits or participation pools were no match for the high annual inflation – which remained high at 48.58% in October 2024, according to the official Turkish Statistical Institute.
“The value of assets under management was US$9 billion two years ago. Now it is US$25 billion. It almost tripled in two years because more people want their investments to match their savings strategies and they prefer the Islamic products.”
Hamit said the rising interest is not solely from domestic retail and institutional investors. “Returns like 50% attract foreign investors. They buy Turkish lira and sell US dollars. See how the US dollar appreciated only 15% or nearly 20% against Turkish lira. This means the 50% return, less the US dollar appreciation of 15%, you get 35% in US dollar terms.”
In terms of asset classes, Hamit said demand for money market and fixed income funds is very high. “These funds are very popular because they offer stable returns. They try to cover against the inflation.”
With the annual inflation projected to decline, Hamit said investor interest is diversifying to equities – especially in US markets, due to currently weaker returns of Turkish equities.
“US equity funds are performing well and we have a good demand for this from retailers. They don’t know well about the markets in Asian countries. Also, not European economies, which aren’t good now. So, our clients want us to establish the US equity fund.”
Anticipating the take-up for this US-focused fund will be strong, even with currency exchange fluctuations, Hamit explained: “As of November 2024, the key interest rate in Turkiye is 50%. Even if it is projected to be lower at 25% in 2025, it remains attractive to local and foreign investors.”
Another asset class with strong demand is that of precious metals investments, especially among pension funds – because these are seen as being able to serve both the conventional and Islamic investors, said Hamit. “We are also looking to launch property funds for the same reason.”
Reaching out to both market sectors is critical as Hamit noted there is a total of 65 portfolio management companies in Turkiye, of which 29 with Shariah compliant offerings – and four being exclusively Islamic. “These firms manage 358 participation-based (Islamic) funds.”
