Value Investing in Turkey: Can Disciplined Stock-Picking Survive the BIST's Momentum Addiction?

Value investing, in its simplest formulation, is the discipline of buying assets for less than they are worth and waiting for the market to close the gap. The strategy has a long intellectual pedigree, a body of academic evidence in its favour, and a roster of legendary practitioners who built fortunes by sticking to it through periods when it appeared broken. Whether it can work in Turkey's equity market is a question that touches on everything from central bank policy to the structure of the domestic investor base, and the answer is less straightforward than advocates on either side tend to suggest.

The Macro Problem

The BIST100 is, in practice, a macro index. Its ten largest constituents, the major commercial banks, the conglomerate holding companies, and a handful of telecoms and heavy industrials, account for roughly 55% of total index weight. These companies are not poorly run. Several are among the best-governed firms in Turkey. But their share prices move primarily in response to macroeconomic inputs: interest rate decisions, currency movements, credit conditions, regulatory shifts. When the Central Bank of Turkey cuts rates, bank shares rally almost mechanically. When the lira weakens, export-oriented industrials re-rate. The fundamental signal, the kind of company-specific earnings quality and balance sheet strength that value investors rely on, gets drowned out by the macro noise.

This is not a minor inconvenience for a value-oriented equity strategy. It is structural. A value investor who identifies a deeply undervalued mid-cap industrial company and builds a conviction position may be entirely correct about the company's intrinsic worth, and still lose money for years because the macro regime is working against the sector, the factor, or the market as a whole. The analytical work can be flawless. The outcome can still be poor. In markets where the macro signal is weaker (the US mid-cap universe, for instance, or parts of the Japanese equity market), company-specific analysis has more room to express itself. In Turkey, the macro overlay is persistent and powerful enough to delay or even negate the kind of mean-reversion that value strategies depend on.

Momentum's Structural Advantage

The corollary of the BIST's macro sensitivity is that momentum, not value, has been the dominant factor in Turkish equities for extended periods. This is visible in BIST performance data over the past decade. During periods of policy easing or currency depreciation, equities that are already rising tend to attract further flows from a retail investor base that is both large and highly responsive to price signals. Momentum begets momentum. The domestic retail investor, who represents a meaningful share of BIST turnover, tends to chase recent performance rather than evaluate valuations. This is not unique to Turkey, but the effect is more pronounced in a market where inflation erodes the purchasing power of cash holdings and drives retail capital into equities as a perceived inflation hedge, regardless of individual stock valuations.

The result is a market environment where value stocks can remain undervalued for far longer than classical theory would predict. The "catalyst" that value investors depend on, the event or recognition that closes the gap between price and intrinsic value, is harder to identify and slower to arrive in a momentum-dominated market. A value manager betting against the prevailing flow needs not only to be right about the fundamentals but also to survive the period during which the market disagrees, and in Turkey, that period can be punishingly long.

The Rate Cycle as Regime Breaker

Turkey's interest rate environment adds another layer of difficulty. The period from 2021 to 2023 saw the Central Bank hold nominal rates artificially low despite surging inflation, producing deeply negative real rates. This fuelled a broad equity rally in which almost everything rose in nominal terms. Differentiating skill from market beta during such a period is nearly impossible. Many equity funds reported strong nominal returns simply because they owned Turkish equities and Turkish equities went up. The relevant question, which is rarely asked in a high-inflation environment, is whether any given fund outperformed the BIST100 total return index on a risk-adjusted basis. Most did not.

The subsequent normalisation, beginning in mid-2023 with a sustained rate-hiking cycle, created the opposite problem. Speculative names that had re-rated to unsustainable multiples during the easy-money years sold off sharply. In theory, this should have been the value investor's moment: a regime shift that punishes speculation and rewards fundamental quality. In practice, the transition was violent enough that even well-positioned portfolios experienced significant drawdowns. Rate-regime shifts in Turkey are not gradual rotations; they are abrupt breaks that can overwhelm any single-factor strategy.

The instability of the rate cycle means that any style of equity investing in Turkey, value or otherwise, must contend with an environment where the rules of the game can change dramatically within a single quarter. A value strategy calibrated for one rate regime may find itself badly positioned when the regime shifts. The manager who was right about company fundamentals can still be caught on the wrong side of a macro transition that no amount of bottom-up analysis could have predicted.

The Institutional Capital Problem

Value investing, done properly, requires patient capital. Positions need time to work. Drawdowns must be tolerated. The holding period for a genuine value strategy is measured in years, not quarters. This creates a fundamental tension with the structure of the Turkish institutional investor base.

Most Turkish institutional capital sits in mandatory pension funds, insurance company portfolios, and bank-affiliated asset managers. These pools of capital are subject to quarterly performance reviews, regulatory solvency requirements, and client redemption pressures that make multi-year holding periods difficult to sustain. A pension fund manager who underperforms the benchmark for four consecutive quarters faces career risk regardless of the analytical quality of the portfolio. The incentive structure pushes toward benchmark-hugging, low tracking error, and the kind of consensus positioning that is antithetical to concentrated value investing.

The boutique model, a small independent firm with a concentrated portfolio and a client base of patient family offices and high-net-worth individuals, is the natural home for value strategies. But the economics of running a boutique asset manager in Turkey are challenging. The addressable market of genuinely patient capital is small. The minimum viable AUM to cover operational costs, regulatory compliance, and a competent research team is a high bar for a firm that cannot rely on distribution through bank branch networks. The result is that few firms attempt genuine concentrated value strategies, and those that do face constant pressure to soften their mandates, diversify into safety, or add bond allocations to reduce volatility for clients who measure performance monthly.

The Talent Question

Fundamental equity analysis, the deep, company-specific research that underpins value investing, requires a particular kind of analyst: someone with the accounting skills to deconstruct financial statements, the industry knowledge to evaluate competitive positioning, and the temperament to hold a contrarian view for years. Turkey produces excellent quantitative finance graduates, and its top universities train strong economists. But the pipeline for fundamental equity analysts, the patient, detail-oriented researchers who spend weeks on a single company, is thin.

The sell-side in Turkey is sparse relative to the market's size. Coverage of mid-cap and small-cap companies is intermittent and often shallow. For a value investor, this creates a paradox: the informational inefficiency that should make the strategy viable is partly a function of the same talent shortage that makes it difficult to execute. Building a research team capable of covering 20 to 30 potential portfolio companies with the depth required for concentrated value investing is expensive, and the talent pool from which to hire is limited.

Could It Work?

The honest answer is that value investing in Turkey can work, but only under conditions that are difficult to assemble and harder to maintain. The strategy requires a concentrated mandate that Turkish regulations, more permissive than UCITS rules, technically allow. It requires a client base willing to tolerate years of underperformance. It requires a research team deep enough to cover the opportunity set. And it requires a market environment in which, at least eventually, fundamental quality is recognised and rewarded.

All of these conditions can be met individually. Meeting all of them simultaneously, and sustaining them through Turkey's volatile rate cycles and macro regime shifts, is the challenge. The intellectual case for value investing in the BIST is strong: the market is inefficient, coverage is thin, and there are genuine valuation anomalies in the mid-cap universe. The practical case requires a specific kind of firm, a specific kind of investor, and a specific kind of patience that the Turkish financial ecosystem does not naturally produce.

The few managers who attempt this strategy deserve close attention, not because they are guaranteed to succeed, but because they are testing one of the most important questions in Turkish capital markets: whether disciplined, fundamental stock-picking can generate durable alpha in a market that seems structurally designed to defeat it.