Turkey's stock market attracted more IPOs than London, Frankfurt and Milan

Istanbul Stock Exchange has been more successful in attracting initial public offerings this year than much larger exchanges in London, Frankfurt or Milan, helped by Turkey's retail share trading boom in an otherwise largely poor year for listings globally, according to Financial Times (FT).

Thirty companies have sold shares in IPOs on Borsa Istanbul this year, raising $1.9bn collectively, according to Dealogic data. The volume of deals has propelled Istanbul into the top 10 global IPO venues of 2023, ahead of far larger stock markets in western Europe and South Korea, notes the cited source.

Turkey's success, along with that of other emerging economies such as Romania and Indonesia, highlights how a number of major Western exchanges are failing to attract major flotations. IPOs in London, for instance, have raised just $967mn, while those in Frankfurt have raised $1.1bn, writes the FT.

Turkey is benefiting as local retail investors become an increasingly influential part of the market. While foreign capital has fled on concerns over President Recep Tayyip Erdogan's unconventional economic policies, retail traders have been turning to equities in the hope of earning big returns to offset the effects of a long-running inflation crisis and a tumbling lira.

The number of investors in Turkey's equities has more than quadrupled to 5.1mn since the start of 2019, according to the Turkish Capital Markets Association. Individual investors' ownership of the overall stock market has doubled over that period to 38 per cent, FT mentions.

• The Bist 100 Index is up 318% since the start of 2022

The race into the stock market has sent share prices flying higher. The benchmark Bist 100 index is up 318 per cent since the start of 2022, a gain of 104 per cent in US dollar terms, FactSet data shows.

"Once you get that ball rolling, people join the game," said for FT Kerem Turunc, managing partner at Turkish law firm Turunc, who specialises in corporate financial transactions.

"Mid-size enterprises are looking at companies that are generally in the same space and of a similar magnitude and think "if these guys can do it, why can't I?".

Newly listed companies have generally posted big gains, sending the Bist IPO index, which tracks companies that have listed over the past two years, soaring more than 550 per cent in lira terms since the start of 2022, according to Refinitiv data.

"Local turnover is incredibly high now and that has contributed to the number of listings in the market," said Tunc Yildirim, head of institutional equity sales at Istanbul-based investment bank ÜNLÜ & Co.

He added that many local investors view stocks, along with autos and houses, as key "venues to store their money" in a highly inflationary environment.

Companies have also been attracted by the prospect of raising funds on equity markets as rapidly-changing financial rules and regulations have made it difficult for many groups to access bank lending at reasonable rates in recent years, executives say.

Turunc said: "The big majority of the companies that are looking to list in Turkey are retail-oriented, domestic-focused businesses".

Last week, for instance, doner and kebab chain Baydöner raised $14mn in Istanbul. Larger companies have also floated their shares, including Kaleseramik, a ceramic tile maker controlled by Turkish industrial conglomerate Kale Group, which raised $101mn in July.

Yidirim added many of the deals this year have had very high participation from local retail traders with very few foreign investors on the books. Kale, for example, sold 79 per cent of shares it offered to domestic individual investors, 20 per cent to local institutional investors and 1 per cent to its employees, according to its website.

The growing importance of retail traders is in part by design: "Regulators really want retail investors to participate in equity capital markets",Turunc said.

He added there has been a "push for a long time by the markets regulator and Borsa Istanbul to educate people about equity capital markets". There is also "more awareness" among founders as well as private equity and venture capital investors that IPOs are a viable option for exits, he said.

Some industry participants worry that buoyant equity capital markets, in which individual investors rush to scoop up allocations in the latest IPOs, will draw some lower-quality companies hoping to cash in, according to FT.

Another major issue in Turkey's equity markets, according to Turunc, is that the proportion of companies' share bases that are floated publicly tends to be very low, which limits investors' ability to exert influence over corporate management.

"The market overall is more active than it used to be, but it's not as sophisticated as it should be", Turunc said, concluding: "That shareholder activism you see in developed markets is not here".