TSPB/Karagöz: Rapid Transformation in Turkey's Capital Markets

On the second day of the Bosphorus Summit, under the panel titled 'Capital Markets and Strategies Transforming in the Digital Age', Pamir Karagöz, President of the Turkish Capital Markets Association and Chairman of QNB Digital Assets Inc., stated that a rapid transformation is taking place in Turkey's capital markets, with small investors increasingly demanding digital experiences. Karagöz remarked, "A new era is beginning where small investors will have access to the opportunities that used to be available only to large investors, and we will strive to maximize this experience." Mahmut Ünlü, Chairman of Ünlü & Co, noted that the share of foreign investors in Turkey has fallen from around 60% to below 30% over time and that the holding period of foreign investors has also shortened. He emphasized the need to strengthen the capital market by engaging local investors. Evaluating mergers and acquisitions in Turkey, Ünlü stated, "With the stabilization of the exchange rate and control of inflation, we expect a rise in direct foreign investments within the next year, and consequently, a more active mergers and acquisitions market."

The second day of the 15th Bosphorus Summit, organized by the International Cooperation Platform, included a panel titled 'Capital Markets and Strategies Transforming in the Digital Age.' Moderated by Prof. Dr. Mehmet Şükrü Tekbaş, a member of the UIP Executive Board, the panel featured speakers such as Pamir Karagöz, Mahmut Ünlü, Burak Sezercan, General Manager of İş Portföy, and Prof. Dr. Emre Alkin, Rector of Topkapı University.

Mahmut Ünlü highlighted that foreign investors had been significant buyers in major public offerings until 2018, but following this period, the decline in the size of public offerings and the entry of smaller companies into the stock exchange led to a serious decrease in foreign participation. Noting that there have been more than 120 public offerings between 2022 and 2024, which is unprecedented, Ünlü stated, "Unfortunately, local investors do not have sufficient resources to adequately support large public offerings when they arise. Additionally, one of the major issues in Turkey is financial literacy. Many individuals purchase shares in public offerings without even knowing what the companies do. In the past, the largest buyers in public offerings were foreigners, who had high levels of financial literacy and determined the correct pricing. With the departure of foreign investors in the new system, this has disappeared. I hope their return will ensure the success of all major public offerings and support healthier price formation."

Ünlü continued by stating that the share of foreign investors in Turkey has dropped significantly, saying, "In the past, when foreign investors came, they stayed for a long time. Now, the holding period for foreigners has shortened and, in this sense, foreign investors in Turkey are no different from local investors. They have a positive effect when entering, but their exit can negatively affect the market, pulling it down. Notably, foreign investors are not a single mass; they have very different investment strategies. To develop the capital market, we need to empower it with local investors."

In discussing mergers and acquisitions in Turkey, Ünlü noted that they are a firm heavily involved in this area. He stated that direct foreign investment in Turkey for acquisitions between 2014 and 2018 was around $14 billion, but this amount has decreased to about $10 billion annually. Ünlü remarked, "Looking ahead, there have been developments in the last 3-4 months that give me hope for the increase in foreign capital, with exciting acquisitions and mergers announced. These developments indicate renewed long-term interest in Turkish assets. With the successful implementation of the medium-term plan—namely, stabilizing the exchange rate and controlling inflation—we expect a rise in direct foreign investments and, consequently, a more active mergers and acquisitions market in the coming year."

Discussing the relationship between digitalization and capital markets, Pamir Karagöz emphasized two aspects. He stated, "One is the composition of Borsa Istanbul. When we look at which companies and sectors align with the new economic model, their share in our exchange is only 1%. This ratio is 22% in emerging market exchanges and 33% in the U.S. Therefore, we must immediately bring this ratio up to global standards. This can occur through existing companies making investments aligned with the new economic model or new public offerings coming from these sectors."

Moreover, Karagöz pointed out the digital transformation of companies in capital markets, noting a similar increase in small investors and public offerings worldwide. However, he stressed the importance of retaining new investors in the system. "Investment companies, portfolio management companies, and all stakeholders in the sector have a crucial mission here, and I believe the sector is fulfilling this mission well. Our instantaneous trading infrastructure is essential. The technical capacity for delivering stock orders in Turkey does not distribute continuously throughout the day. There are periods, particularly at the opening of the market, when there is significant congestion. The sector has managed this challenge effectively, and we are entering a phase focused on user experience. It's not just about transmitting orders from one platform; we need to evolve into a period where individuals can access robo-advisory services, chatbots, and customized information based on their investment habits and financial literacy levels. There is a rapid transformation happening in Turkey's capital markets. This new technology aims to enlighten investors; everyone, including small individual investors, desires to experience these technological trends. Therefore, we can say that a new era is beginning where small investors will have opportunities previously enjoyed only by large investors."

Burak Sezercan, General Manager of İş Portföy, noted that portfolio management companies in Turkey manage around $173 billion and are, in fact, the largest investors in Borsa Istanbul. He mentioned that these firms have been the largest institutional investors over the past 3-4 years, and despite rapid growth in the sector, they still represent only 11% of national income. Sezercan added that this figure is around 80% in Europe, indicating there is much room for growth.

Regarding digitalization in the sector, Sezercan stated, "Investment funds operate on two fronts: management and distribution. Distribution is primarily conducted through banks and financial institutions' digital channels. Approximately 85% of this work occurs through digital channels such as bank applications, and essentially, the digitalization issue here has been resolved. On the management side, we utilize various algorithms and technologies, including artificial intelligence, to manage our funds. However, I think the critical point currently lies in operational aspects. The daily transaction volume at Tefas has jumped from around 70-72 thousand to nearly 140 thousand in less than a year—a 90% increase. From custodianship to valuation, auditing, and reporting, we need to develop the technological infrastructure to manage this operational growth. Companies that do not invest in this area risk hinder the growth of the entire country, not just themselves."

Prof. Dr. Emre Alkin, Rector of Topkapı University, commented on the importance of production, indicating that mere manufacturing is not sufficient, a reality that has become clear in the early 21st century. "There is a vast ecosystem, and capital markets sit at its center. However, we are experiencing some confusion as we abruptly transitioned to digital operations. During this transition, we can only finance the necessary digital infrastructure through capital markets. If this is successful, we might say that part of the gap between developed and developing countries will begin to close. The key to unlocking capital markets is predictability, and digitalization provides that predictability. Our study with 17 economists shows that when capital markets and digitalism come together in the next decade, companies may have a chance to exceed even their maximum desired revenues by 24%."