Trive Investment: The Challenging Journey in a High-Interest Environment Will Last at Least Until the Second Half of 2025
Forex - In the evaluation made by Trive Investment, it was stated that "the challenging process in a high-interest environment will continue at least until the second half of 2025, and the attractive yield and low risk of Money Market Funds will further challenge the stock market this year." Trive Investment published a report titled "Overview of Borsa Istanbul 2024-2025 and Sectoral Evaluations."
The report mentions, "We will transition to a period where we can say it is time to change our accounts when the market witnesses the transition of money from PPF to the stock market."
The complete report is as follows: "We are in a period where financial literacy holds critical importance in capital management. In the post-pandemic process, we experienced a capital markets era where stocks selected with suitable technical analysis and low valuations (for instance, 3-5 P/E, 1-2 P/B) showed significant success. This high-yield period gained during the global pandemic ended at the beginning of 2024, and the balances had changed.
In 2024, we faced a period where traditional methods lost their effectiveness, and market dynamics shifted to a different dimension. Inflation Accounting, which entered our lives in 2024, played a leading role here. The lack of sufficient knowledge in the field of inflation accounting in our country has become one of the strongest signals of this transformation. The application of inflation accounting to financial statements has seriously complicated both forecasts and valuation models, increasing the uncertainties faced by analysts.
In the new era, it has become inevitable for market players to turn not only to technical analysis and classical valuation methods but also to a broader macroeconomic perspective and advanced analytical tools. All these situations clearly express to us that a brand-new era in capital markets has begun.
In 2024, with high credit costs due to high-interest rates, the issue of carrying costs has become one of the biggest obstacles to the direction of the market, especially on days with high settlement activity. During periods where high credit costs make holding positions challenging, we have witnessed market statistics where the Borsa Istanbul index has generally faced significant declines over two weeks but, unfortunately, has not reacted with equal magnitude to two-week increases.
Furthermore, another painful issue in a high-interest environment is the share listings by companies or their shareholders. In a period where access to low-interest loans is difficult, share sales are seen as the least costly method of meeting capital needs (debt repayment, factory repairs, setting up new facilities, etc.). As we compile all these situations for 2025, we will enter a year where financial literacy will hold much greater importance, with more algorithmic functions at work instead of traditional valuation methods, and where the timing of analysis will be crucial. In the era of Artificial Intelligence, where algorithms have order execution speeds of 3-5 milliseconds, analysts and professionals who do not adapt to this new era of capital markets will frequently encounter the emphasis on the irrationality and inconsistency in the market.
The failure to assess analyses and trading operations supported by the use of artificial intelligence and technology in capital markets may result in lagging behind in overall market performance. With the lifting of the short-selling ban in BIST50 in 2025, there is hope for increased volumes from two-way transactions and increased foreign interest, leading investors in Borsa Istanbul to want to start the capital markets with optimism. However, it must be regrettably stated that foreign investor interest in Borsa Istanbul will remain limited, with a short investment horizon, as liquidity issues persist and the effects of inflation accounting on finances continue; thus, 2025 will again be a challenging year for Borsa Istanbul.
Adding the high-interest environment to all this means that the discomfort caused by high credit costs should no longer be surprising when companies sell shares for low-cost cash needs. This situation will persist until interest rates decrease to at least 30-35%.
SECTORAL OUTLOOK If we take a brief sectoral look for 2025; we will witness that demand will come in short bursts until the second half of the year, with high-interest rates but not be very stable. The banking sector will continue with domestic and foreign interest at least in correlation with the index. While the rise from a high-interest environment to a low-interest environment may highlight the real estate sector, we believe the cement sector will have a higher margin due to the quick cash-turning advantage with ready-mix concrete.
Looking at the widely discussed industrial sector for 2025, we will witness recovery instead of revival with a serious contraction in demand and high costs. Without stable increases in industrial data, lacking government incentives, and not transitioning to a low-interest environment, we should not expect extraordinary results for a considerable period in this sector. Some sectors that may create opportunities; the transportation sector with stable flight data, the communication sector with steady increases in per capita income, intermediary institutions with increased commission revenues from the lifting of the short-sale ban, and the financial leasing sector with the preference for alternative financing tools and long-term flexible contract advantages will continue to offer attractive opportunities.
If we discuss a potential interest rate cut in 2025, the magnitude of the cut and the significance of legal changes will weigh more heavily than the mere cut in some sectors. The automotive sector and white goods sector experiencing serious demand contractions will take center stage in these circumstances. Meanwhile, the energy sector, once popular, has also fallen victim to high costs. Again, in this sector, the magnitude of the interest cut will be of great importance rather than just the fact that rates will decrease.
SECTORAL EVALUATIONS REAL ESTATE SECTOR With the beginning of the interest rate cut process and the positive impacts of state supports on the sector, we can expect the monitoring of balance sheets and performances in the real estate sector to provide positive contributions to investors. According to TURKSTAT data, the highest level of housing sales since December 2022 revitalizes the sector dynamics. Companies that announce profits and distribute dividends may be encouraged to organize housing campaigns quickly to take advantage of corporate tax benefits, especially REIT companies. Additionally, changes in ratios in housing loans by the Banking Regulation and Supervision Agency (BRSA) may increase sensitivity to domestic demand. These developments significantly emphasize the sector's discount potential while supporting demand in the sector.
CONSTRUCTION AND CEMENT We believe that demand for the cement sector, which we consider to hold the highest potential in the interest rate cut cycle, will increase. Fast cash inflow with ready-mix cement can be seen as an extra advantage in inflation accounting. The attractiveness of companies operating in construction in the Middle East’s Syria region and Russia continues in 2025 with the acceleration of peace negotiations during the Trump era. The reconstruction of earthquake-affected areas and the acceleration of urban transformation in earthquake-risk areas may positively impact companies' cash flows in the upcoming period.
AUTOMOTIVE Although interest cuts may bring short-term demand to the sector, we do not believe this demand will be sufficient. Macroeconomic challenges in the sector lead to serious contractions in demand, while the competition posed by the Chinese BYD company in Turkey and the rising costs in a high-interest environment are among the biggest disadvantages. New year campaigns may create short-term activity on the sales side in sectoral activities. The situation in the automotive industry may change with potential legal changes (such as reduced SCT, incentives) beyond interest cuts. Additionally, the factory closures by companies in the European market may positively affect potential investments in Turkey with an increase in capacity.
FOOD AND RETAIL The food and retail sectors are among the sectors most positively affected by inflation accounting. The main factor for this positive situation is the rapid turnover of high inventory by companies, maintaining constant cash flows, and the successful reflection of this situation on financial results. We can foresee that the upward margin in the food sector, which we have observed since the beginning of the year due to the effects of inflation accounting, may now shrink. This is primarily due to the declining inflation rate, profitability pressures from rising costs, and a decrease in inflation speed due to the base effect along with the interest cut process. While this situation slows the growth rate in the sector, it causes price increases to occur at a lower speed compared to previous periods.
TRANSPORTATION Companies operating in export-heavy sectors struggle to turn their high costs into significant profits in a stable exchange rate environment, presenting a major disadvantage. The transportation sector is often the most affected during global crisis periods. Recently, improvements in traffic data in the transportation area indicate that companies showing a sustainable upward trend are a step ahead in competition. With expectations of stable and strong increases in traffic data in 2025, the absence of major global issues may reflect the significance of low multipliers in pricing concepts in the sector.
COMMUNICATION Telecommunication is one of the important sectors benefiting from inflation accounting. Privilege agreements, the 5G tender, renewal of year-end subscriptions, and the implementation of raised tariffs in the new year are crucial dimensions concerning the profitability of companies. Although the growth in ARPU (Average Revenue per User) provided strong support for the sector in the past period, the impact of the disinflation process may prevent rapid growth as seen before in the upcoming period.
INTERMEDIARY INSTITUTIONS Due to inflation accounting, there is pressure on the net profitability of intermediary institutions. In brokerage firms heavily weighted in equities, low trading volumes and low commission rates due to competition prevent them from reaching the proportional profitability levels of previous years. In the corporate space, negotiated transactions, equity-based interest income, foreign investments and collaborative activities, leveraged transactions, bonds, and other products can provide a positive impact on profitability. Furthermore, the resumption of short-selling transactions is expected to increase stock trading volumes and the commission revenues arising from these volumes will also be an important factor supporting the profitability of intermediary institutions.
WHITE GOODS Although Europe is attempting to recover following the pandemic and energy crisis, the Euro has not fully demonstrated the expected strengthening performance against the Dollar. A potential global recovery in the Eurozone may stimulate the activities of companies exporting in this region, but the weak demand for durable consumer goods in a high-interest environment will continue the contraction in the sector for some time. A strong Turkish Lira makes it difficult for domestic producers to compete in the export market, while increased imports from overseas manufacturers may cause local producers to lose market share.
CONCLUSION: The challenging process in a high-interest environment will continue at least until the second half of 2025, and the attractive yield and low risk of Money Market Funds will further challenge the stock market this year. We will transition to a period where we can say it is time to change our accounts when the market witnesses the transition of money from PPF to the stock market. Our greatest wish is to witness healthy regulations in capital markets in 2025 that are in favor of investors. With the lifting of the short-sale ban on the first day of the new year, we hope for increased liquidity in a healthier market, increased foreign interest, and a long-term horizon. Wishing for a year where the concept of value becomes more important than mere pricing in stock valuations in Borsa Istanbul."