Beykoz University Faculty Member Assoc. Dr. Evren Bolgün, supported by the fact that some bank shares have increased between 100 percent and 450 percent regarding the volatility experienced in Borsa Istanbul since July, and that public officials, who announced to the public that citizens should invest in the BIST, were accused of “information-based market fraud”. He said they were participating. We talked to Evren Bolgün about the latest developments in the stock market.
– The stock market was perhaps the only element of the economy that went well, but we saw in the last weeks that everything went wrong there, what can you say? What’s going on in Borsa Istanbul?
In fact, the process of disrupting market movements dates back to 2018, four years ago. In August 2018, the BRSA introduced a swap restriction. It was the first step in disrupting that market. Then came the rhetoric that interest is the cause, inflation is the result. In this sense, I consider the middle of 2018 as a milestone. The independence of the Central Bank was completely abolished. At this point, we have reduced the interest rate in an absurd way. The policy rate has come down to 12 percent. The main indicator in the pricing of all assets is the Central Bank interest rate. The entire market revolves around it. At the point we arrived, we killed this place too.
There was a credit side that was not controlled by domestic and national macroprudential measures, and now they control it 100 percent. We finished that part. Currency and the stock market remained. When the CBRT reserves were melted, we ended the liberalization of the foreign exchange market. The stock market remained. Within these dynamics, there was little else for citizens to invest in. In order to make the stock market attractive, there were investment funds based purchases, together with the minister’s statements, public banks’ resources and the purchases of the Turkey Wealth Fund, in the last July-August months.
Yes, as of July 5, there is a foreign entry to the Stock Exchange. The first purchase movements in banks came from Citibank, Deutsche Bank, HSCB. But it is not clear that 100 percent of the purchases come from foreigners. Because although they are Turkish, those who have a residence permit and have a job abroad may have opened an account there, I call them foreigners with a mustache. Purchase movements started to intensify especially after August. There are foreigners, but there are also local speculators.
I now call it a qualified operation.
OFFICIALLY MANIPULATION
– What kind of operation?
It really is an operation going on. I’m not saying it’s speculation, it’s clearly turned into manipulation.
Since Borsa İstanbul was founded, a very conscious and sophisticated event has been held. It is a highly qualified and conscious operation. There’s leverage involved. There is a coordinated movement. It’s not an easy job. It is not such a simple transaction as I bought, sold or short-sold shares in the stock market. As a result, companies with such a large transaction volume were left without sellers for days and then without buyers.. I have never seen such a thing in my 30-year professional finance career.
Bank shares rose by 250 percent to 450 percent in a 2-month period. The rise in banking shares in the spot market during the July-September period had a significant positive contribution to the BIST.30 Futures index.
This is an operation carried out in the form of plus 10 percent, plus 10 percent, plus 10 percent on the basis of bank shares. So there’s a minimum of 10x leverage. Within half an hour, they had won 100 percent. This is actually a great manipulative gain. This is not a characteristic form of purchase by a foreigner. Foreigners do not enter the market like this. Can a share like Vakıfbank or Şekerbank increase to 300-400 percent in 1.5 months, what happened to these banks? Then the strategy turned into a vicious circle.
CITIZENS DAMAGED
– Will this vicious cycle continue?
It won’t. The public authorities were too late to intervene in the leverage incident, they just watched. Those who made those transactions, watched them win.
We see that the high-level public officials, who announced to the public that the citizens should invest in the BIST, have participated in the crime of “information-based market fraud”, especially with the support of the price movements in the spot bank stocks in a short period of time, ranging from “100 percent to 450 percent”. In addition to the excessive value gains in BIST bank shares, we have seen that gains approaching “20-fold” were allowed by the official authorities until September 13, although the leverage levels vary from the Forward Bank Contracts traded in the VIOP Futures Market.
At the end of the process, the ordinary citizens who attacked the private banks, who said that they missed the profits in the public banks, started to make serious losses.
As a result of the operation that started on forward bank contracts, some BIST bank shares (SKBNK, TSKB) still have problems. Due to the principle of physical delivery of bank Long (Buy) positions in the leveraged VIOP market, these friends have bought so many shares in Borsa Istanbul that they can’t get rid of them now. There is no buyer.
THE PROBLEM WILL CONTINUE
– What about these stocks?
This needs to be melted. Until these are melted, the problem will continue in this way. Halkbank also bought its own shares last week. This is now the end point of ignorance. What does this mean, there is no buyer, the state is putting its own bank into action to save these people.
There is also a problem; Positions in VIOP must be closed by September 30. Now it is planned to introduce manipulation regulation. They will probably close the maturities of some stocks. They will increase the minimum position move amounts. Ultimately, this loss has to be compensated somehow. These positions are mostly seen in 4-5 brokerage houses. Cleaning is currently underway. Small investors who took Short (Sell) positions in these stocks until September 13 suffered serious losses. But these friends also won very seriously until that date. We don’t know how much the CMB will fine them now. The problem is not solved, it will continue this week.
INTEREST DOWNLOAD TO SINGLE DIGIT
– The Central Bank cut interest rates again last week, what would you say?
There is an interest rate of 12%. There are bond interest rates of 13-14 percent and loan interest rates of 25-36%. They also sell from the Central Bank’s foreign exchange reserves while reducing interest rates. Decisions are no longer rational. Another serious monetization move awaits us in the coming months. Nearly 500 billion TL of money will be used for the election. There will be full throttle electoral economy. Interest rate cuts will continue. Inflation will fall by 10-12 points at the end of the year due to the base effect.
– What happens to inflation at the end of the year?
I think that inflation will exceed 85 percent and it will probably be around 75 percent by the end of the year due to the base effect. I think that inflation will go down a bit in February 2023 due to the recession to be experienced in developed countries. Turkey’s growth may decrease to 3 percent in the second half of next year. Saying what will be inflation in 2023 does not matter in this environment. If the government will change, all economic policies will be renewed.
– What are the main problems in the Turkish economy right now?
The economy is under severe currency pressure. This increases costs and inflation. This needs to be resolved. There has been a 40% increase in exchange rates since the beginning of the year.
THEY ARE WORKING SO THAT THE KUR DOESN’T GET TO 36 LIRA
– How much does it cost?
It is very difficult to make a point estimate here. If we think that it will lower the interest rate, then there will be an increase in the exchange rate. I think there will be an interest rate cut in November, then the exchange rate will exceed 20 liras. In January, they will reduce the interest rate again in the new year. Then the dollar will be over 22 liras. There will be an exchange rate increase of 20 percent in three months. There are no more foreign exchange reserves to sell. I do not see a solution in the short term for the foreign exchange problem. Until the election, they are actually working to prevent the doubling of the dollar that we saw in December in 2021. They are trying not to increase the exchange rate, which is 18 TL today, to 36 TL.