Turkey, the country that Mustafa Kemal Atatürk, or Mustafa Kemal Pasha founded on October 29, 1923, has always been a good training ground for traders and investors due to its dynamic capital market and rather volatile currency TRY Turkish Lira.
Turkey should be viewed as a high-volatility disinflation and re-rating opportunity rather than as a conventional core emerging-market allocation.
The investment opportunity rests on an unusual combination of inexpensive equity valuations, exceptionally high interest rates, positive real rates, declining inflation, improving foreign-exchange reserves and the possibility of renewed international capital flows.
The principal constraint remains the Turkish lira.
For international private clients, the critical distinction is therefore between the potentially attractive performance of Turkish assets in local-currency terms and the returns ultimately realized in USD, EUR, CHF or another base currency.
Executive Summary
Turkey is entering a potentially important transition from macroeconomic instability toward disinflation and greater policy normalization.
If orthodox monetary policy can be sustained, declining inflation and eventually lower interest rates could create favorable conditions for both Turkish bonds and equities.
The investment thesis is not simply that Turkey is cheap.
It is that Turkey may be moving from an environment characterized by high inflation, negative real interest rates, currency instability and declining foreign-investor confidence toward one characterized by positive real rates, disinflation, improving reserves and gradually recovering policy credibility.
If that transition continues, Turkish assets could experience a meaningful re-rating.
Turkish equities remain inexpensive relative to most developed markets and many major emerging markets. High nominal TRY yields can become attractive when inflation falls faster than the currency depreciates. The iShares MSCI Turkey ETF, TUR, offers international investors a straightforward way of gaining diversified exposure to Turkish companies.
Turkey also offers useful diversification.
Unlike many global and emerging-market equity allocations, Turkish equities are not dominated by technology companies. The market provides exposure to industrials, financials, consumer companies, energy, materials, infrastructure, defense and internationally competitive businesses.
The principal risks remain substantial.
TRY depreciation, persistent inflation, political intervention, regulatory uncertainty and premature monetary easing could overwhelm otherwise favorable company fundamentals.
For this reason, Turkey should generally be treated as a measured satellite allocation rather than a strategic core holding.
The central investment proposition is straightforward: Turkey does not need to become a low-risk developed market for Turkish assets to perform. It needs to become more predictable than the risk discount currently embedded in Turkish asset prices.
The Macro Turning Point
Turkey spent much of the previous decade struggling with a combination of negative real interest rates, persistent inflation, currency depreciation, dollarization and declining international investor confidence.
The current policy environment is materially different.
With the Central Bank of the Republic of Türkiye maintaining a highly restrictive monetary stance and inflation moving downward from previous extremes, real interest rates have become positive.
This represents an important change.
For years, Turkish households and companies had strong incentives to escape the Turkish lira and seek protection through dollars, euros, gold, property and equities.
Positive real interest rates can begin to change that behavior.
If holding TRY deposits and fixed-income instruments produces a positive inflation-adjusted return, the incentive to continuously abandon the currency becomes less powerful.
For international investors, the direction of inflation is therefore arguably more important than its absolute level.
Turkey does not need inflation to immediately fall to European levels.
What markets require is credible evidence that inflation and inflation expectations are moving consistently downward.
That creates the possibility of a powerful sequence:
Inflation falls → monetary credibility improves → currency pressure moderates → bond yields decline → corporate financing costs fall → earnings visibility improves → foreign capital returns → equity valuation multiples expand.
This is the essence of the Turkish disinflation trade.
Why Disinflation Matters for Equities
Declining inflation can have an unusually powerful effect on emerging-market equity valuations.
When inflation is extremely high, investors demand a large risk premium. Future corporate earnings become difficult to forecast; discount rates rise and investors become reluctant to assign high valuation multiples to companies.
The reverse can happen during successful disinflation.
As macroeconomic uncertainty declines, investors may become willing to pay higher multiples for the same earnings.
This is particularly important in Turkey because Turkish equities continue to trade at substantial valuation discounts to major developed and emerging markets.
A market trading at approximately seven times forward earnings does not necessarily require extraordinary earnings growth to produce strong returns.
If the valuation multiple moves from 7x earnings to 9x earnings, that alone represents approximately 29% multiple expansions before considering earnings growth or dividends.
This potential re-rating is one of the most attractive components of the Turkish investment case.
Turkey Is Not One Investment Trade
Private clients should not think about Turkey simply as an equity-market allocation.
There are at least four distinct ways to express a positive view on Turkish normalization.
- The first is Turkish equities, either through TUR or individual Borsa Istanbul companies. This is primarily an earnings-growth and valuation re-rating trade.
- The second is TRY government bonds and bank deposits. This is principally a carry, inflation and currency trade.
- The third is USD-denominated Turkish sovereign and corporate bonds. These allow investors to participate in improving Turkish credit fundamentals and potentially declining credit spreads while avoiding direct TRY currency exposure.
- The fourth is direct individual Turkish equities, where investors can target specific themes such as banking, defense, aviation, industrialization or consumer growth.
These investments have very different risk profiles and should not be treated as interchangeable.
TUR – The Simplest International Equity Vehicle
For many international private clients, the iShares MSCI Turkey ETF, ticker TUR, represents the simplest implementation.
TUR trades in US dollars and provides diversified exposure to the Turkish equity market without requiring investors to establish a local Turkish brokerage or custody relationship.
It holds approximately 70 or more Turkish companies and provides broad exposure across the country's major listed sectors.
Its expense ratio is higher than that of conventional global-market ETFs, but this is understandable for a specialist single-country product.
The crucial point is that TUR does not eliminate Turkish-lira risk.
Although the ETF trades in USD, the underlying companies and their valuations remain exposed to the Turkish economy and currency.
Consequently, an investor's USD return depends on both the performance of Turkish equities and movements in TRY.
TUR should therefore be regarded as a tactical single-country allocation rather than a buy-and-forget core ETF.
What Investors Actually Own Through TUR
One of the attractive features of Turkey is its sector composition.
Turkish equities are not another version of the US technology trade.
Industrials represent roughly 28% of TUR, while financials account for approximately 17%. Consumer staples represent around 14%, materials approximately 12% and energy around 9%.
Real estate, consumer discretionary companies, utilities, telecommunications and healthcare provide additional diversification.
Information technology represents only a very small proportion of the portfolio.
This creates an interesting portfolio characteristic.
An international investor whose existing global equity portfolio is heavily exposed to US technology, artificial intelligence and mega-cap growth companies can use Turkey to introduce a very different group of economic exposures.
Buying TUR is effectively buying exposure to:
Turkish industrialization, banks, domestic consumption, infrastructure, energy, defense, real assets and internationally competitive Turkish companies.
Defense – A Structural Turkish Growth Theme
Turkey has developed one of the world's increasingly important domestic defense industries.
ASELSAN represents one of the clearest listed expressions of this transformation.
The structural drivers extend beyond the Turkish domestic economy.
Turkey is a NATO member situated at the intersection of Europe, the Black Sea, the Caucasus, Central Asia and the Middle East.
Higher European defense expenditure, regional geopolitical tensions, increasing Turkish defense exports and the country's desire for greater technological and military independence provide a potentially powerful long-term structural backdrop.
Turkish defense should therefore be distinguished from purely cyclical domestic Turkish exposures.
It may ultimately prove to be one of the most interesting structural components of the Turkish equity market.
Turkish Banks – The Leveraged Disinflation Trade
Turkish banks deserve particular attention.
The sector has operated through years of extraordinary macroeconomic conditions involving inflation distortions, regulatory intervention, currency instability, changing deposit behavior and extreme interest-rate volatility.
A successful macroeconomic normalization could materially change this environment.
As inflation falls and monetary conditions gradually normalize, deposit behavior can become more predictable, regulation can potentially simplify, credit growth can normalize and investors can assess bank profitability with greater confidence.
Foreign investors historically played an important role in Turkish banking equities.
A return of international capital could therefore produce significant valuation expansion.
Banks could consequently become one of the highest-beta expressions of successful Turkish disinflation.
The reverse is also true.
If monetary credibility deteriorates or another currency crisis develops, Turkish banks would likely be among the most vulnerable sectors.
Turkish Airlines – A Global Turkish Company
Turkish Airlines represents a different type of Turkish investment.
Although listed in Turkey, the company is not simply dependent upon Turkish domestic demand.
Its enormous international network gives investors exposure to passenger and cargo flows connecting Europe, Asia, Central Asia, Africa and the Middle East.
Istanbul's geographic position increasingly allows it to function as one of the world's major aviation hubs.
This makes Turkish Airlines an interesting example of a Turkish-listed company whose underlying economic opportunity extends well beyond Turkey itself.
For international investors, companies of this type can be particularly attractive because they combine Turkish valuations with global revenue exposure.
The Turkish Lira – The Central Risk Variable
The Turkish lira remains the single most important risk for international investors.
A foreign investor can be completely correct about a Turkish company and still earn a disappointing USD return if TRY depreciation is sufficiently large.
Consider a simple example.
If a Turkish stock rises by 35% in TRY terms while the lira depreciates by 25% against the US dollar, the investor's approximate USD return is:
1.35 × 0.75 − 1 = +1.25%.
An apparently spectacular 35% local-currency equity gain has almost disappeared.
If the same stock rises by 35% while TRY depreciates by only 10%, the USD return becomes approximately:
1.35 × 0.90 − 1 = +21.5%.
This demonstrates why stabilizing the rate of currency depreciation is so important.
For TUR investors, think:
Turkish equity performance × TRY translation.
For TRY bond investors, think:
Interest income minus the economic impact of TRY depreciation.
For investors in USD-denominated Turkish sovereign bonds, direct TRY exposure is substantially reduced, although sovereign and credit risks remain.
Turkish Interest Rates Are an Asset Class
Turkey's exceptionally high nominal interest rates mean that fixed income deserves as much attention as equities.
TRY deposits and government bonds can provide extraordinary nominal yields by developed-market standards.
But a 30%, 35% or 40% nominal TRY yield should never be confused with an equivalent USD, EUR or CHF return.
The relevant equation is essentially:
TRY yield – currency depreciation = approximate hard-currency economic return.
The Turkish carry trade becomes particularly interesting when three conditions occur simultaneously:
- Interest rates remain high.
- Inflation continues falling.
- TRY depreciation slows.
If these conditions persist, international investors can potentially earn substantial carry while also benefiting from falling bond yields and capital appreciation.
Conversely, if TRY depreciation accelerates, much of the nominal yield can disappear.
USD-Denominated Turkish Bonds
For many private-bank clients, USD-denominated Turkish sovereign and corporate bonds deserve consideration.
They provide exposure to improving Turkish credit fundamentals without requiring the investor to take direct TRY currency risk.
If Turkish macroeconomic credibility improves, sovereign credit spreads can compress.
That can generate capital gains in addition to coupon income.
For conservative investors who find TUR too volatile and TRY exposure too unpredictable, selected hard-currency Turkish bonds may therefore represent a cleaner way to participate in Turkish normalization.
Credit quality, maturity, duration, liquidity and issuer selection nevertheless remain essential.
Foreign-Exchange Reserves and Capital Flows
Turkey's reserve position has improved significantly from previous periods of acute stress.
This matters because larger reserves provide policymakers with greater capacity to manage periods of currency volatility and strengthen investor confidence in the country's external financing position.
Foreign portfolio capital has also begun returning to Turkish assets.
Bond inflows have generally been particularly important because international investors can capture high Turkish yields while positioning for disinflation.
Turkey's relatively modest size in global capital markets creates an interesting asymmetry.
The Turkish equity market represents only a small fraction of global equity-market capitalization.
Consequently, Turkey does not require enormous international asset reallocations to move asset prices.
A relatively modest increase in global emerging-market allocations toward Turkey can have a disproportionately large impact on Turkish bond yields, equities and the currency.
Political and Institutional Risk
Turkey's valuation discount is not accidental.
International investors are being compensated for significant political and institutional uncertainty.
Political developments can rapidly affect:
Central-bank credibility, foreign capital flows, the Turkish lira, banking shares, government-bond yields, CDS spreads and equity valuations.
For this reason, Turkish equities should never be analyzed purely on conventional valuation measures such as P/E or price-to-book ratios.
A company trading at six- or seven-times earnings may be fundamentally cheap, but part of that discount represents compensation for country-level risk.
The investment opportunity arises when investors conclude that the probability or severity of those risks is declining.
The Central Policy Question
The central question is whether Turkey's political leadership will allow sufficiently restrictive monetary policy to remain in place until inflation expectations are convincingly anchored.
Markets do not require perfect monetary policy.
They require credible monetary policy.
A gradual reduction in interest rates consistent with declining inflation would likely be positive for Turkish assets.
Aggressive rate cuts before inflation is controlled would represent a very different scenario.
Premature easing could lead to renewed TRY weakness, rising inflation expectations, foreign capital outflows and another increase in Turkey's risk premium.
Policy credibility should therefore remain one of the primary indicators monitored by private clients holding Turkish assets.
Bull Case
In the bull case, inflation falls convincingly toward the 15–20% range.
Positive real interest rates are maintained long enough to establish credibility.
TRY depreciation slows substantially.
Foreign-exchange reserves continue improving.
International capital returns to Turkish bonds and equities.
Interest rates gradually decline without destabilizing the currency.
Bank profitability normalizes.
Corporate funding costs fall.
Turkish equities experience both earnings growth and valuation multiple expansion.
Under this scenario, TUR could potentially generate very strong USD returns.
The particularly powerful feature of this environment would be that bonds and equities could rally simultaneously.
Base Case
In the base case, inflation continues declining but more slowly.
The Turkish lira continues depreciating, although at a considerably more manageable rate than during earlier crisis periods.
Interest rates remain high.
Economic growth remains reasonably resilient.
Corporate earnings continue growing in nominal terms.
Foreign investors gradually rebuild Turkish positions.
Under this scenario, Turkish equities could produce positive but volatile returns, with TRY depreciation absorbing part of the local-equity gains.
This remains the most reasonable central scenario.
Bear Case
In the bear case, inflation becomes sticky or begins accelerating again.
Political pressure leads to premature interest-rate reductions.
TRY depreciation accelerates.
Foreign investors withdraw capital.
Foreign-exchange reserves deteriorate.
Banking shares and domestic cyclical equities de-rate.
Under this scenario, Turkish equities could experience substantial losses in USD terms even if the BIST index appears relatively resilient when measured in TRY.
This is precisely why local-currency index performance can be misleading for international investors.
Portfolio Construction for Private Clients
Turkey should generally be treated as an opportunistic satellite allocation rather than a large strategic portfolio position.
For a globally diversified balanced private-client portfolio, an illustrative allocation could involve approximately 1–3% in Turkish assets, with higher allocations reserved for investors who explicitly understand and accept the country's volatility.
One possible framework would be:
TUR / Turkish equities: 1.0–2.0%
Turkish USD bonds: 0.5–1.5%
TRY bonds or deposits: 0–1.0%
This creates a possible total tactical Turkish allocation of approximately 1.5–4.0%, depending upon investor risk tolerance and existing emerging-market exposure.
These allocations are illustrative rather than personalized investment recommendations.
For many private clients, beginning with TUR and/or USD-denominated Turkish fixed income is likely to be cleaner than making a large unhedged TRY investment.
What Investors Should Monitor
The Turkish investment thesis should be monitored against specific macroeconomic milestones.
Positive signals would include CPI inflation falling below 25% and eventually below 20%, continued positive real interest rates, further reserve accumulation, slower TRY depreciation, declining sovereign CDS spreads and government-bond yields, sustained foreign portfolio inflows and improving Turkish bank profitability.
Warning signals would include renewed inflation acceleration, aggressive premature interest-rate reductions, sharply accelerating TRY depreciation, persistent reserve losses, foreign-capital outflows, material political interference with monetary policy and deterioration in banking-sector fundamentals.
TUR should therefore not be treated as a passive permanent allocation.
It is a position whose macroeconomic thesis should be continuously tested against observable data.
The Structural Investment Case for Turkey
The cyclical disinflation story should not obscure Turkey's considerable structural strengths.
Turkey has a population exceeding 85 million people, a large domestic economy, sophisticated manufacturing capabilities, globally competitive tourism, an increasingly important defense industry and one of the world's major international airlines.
Its geography is unusually valuable.
Turkey sits at the intersection of:
Europe, the Middle East, the Caucasus, Central Asia, the Black Sea and the Mediterranean.
Few investable emerging economies occupy such a strategically important position.
Turkey is also deeply integrated into European manufacturing and supply chains.
As European companies diversify production and seek manufacturing locations closer to European end-markets, Turkey can benefit from near-shoring.
Its combination of industrial capability, geographic proximity, logistics infrastructure and relatively competitive production costs creates a credible long-term manufacturing proposition.
What Private Clients Should Understand
The Turkish opportunity is ultimately composed of three major macro trades.
- The first is the disinflation trade.
Investors buy bonds in anticipation that inflation and interest rates will decline.
- The second is the equity re-rating trade.
Investors buy Turkish companies while valuations continue to reflect a substantial macroeconomic and political risk premium.
- The third is the TRY carry trade.
Investors earn exceptionally high local interest rates while betting that currency depreciation will remain sufficiently below the yield advantage.
Of these three strategies, the disinflation and equity re-rating trades may offer the most attractive strategic arguments for international private clients.
A large naked TRY position remains considerably more dependent upon currency timing.
Investment Conclusion
TUR / Turkish Equities: TACTICAL BUY
Turkey represents one of the more interesting contrarians emerging-market opportunities of 2026.
The attraction comes from an unusual combination of:
Cheap valuations.
Positive real interest rates.
Disinflation.
Resilient economic growth.
Improving foreign-exchange reserves.
Returning international capital.
Globally competitive Turkish companies.
Potential valuation multiple expansion.
Cheapness alone, however, is insufficient.
The Turkish investment case ultimately depends upon two variables:
policy credibility and the Turkish lira.
For private clients, Turkey should therefore be approached with measured position sizing and clear risk limits.
A 1–3% satellite allocation can provide meaningful upside participation without allowing a highly volatile single-country position to dominate overall portfolio risk.
TUR offers the simplest diversified equity implementation.
USD-denominated Turkish bonds can complement this exposure for investors seeking income and potential credit-spread compression without taking direct TRY risk.
TRY bonds and deposits offer potentially extraordinary carry but should be understood primarily as currency investments rather than simply fixed-income investments.
The central asymmetry remains compelling.
Turkey does not have to become Switzerland. It only has to become more predictable than the valuation discount currently implies.
If inflation continues downward, monetary orthodoxy survives, reserves strengthen and TRY volatility gradually moderates, Turkey could transition from being viewed primarily as a perpetual macroeconomic crisis trade toward a conventional emerging-market investment story.
That transition from instability toward predictability is the investment opportunity.
Important Disclaimer
This material has been prepared for information and discussion purposes only and does not constitute investment advice, an offer, solicitation or recommendation to purchase or sell any security, currency, fund or financial instrument.
Any portfolio allocations or scenarios discussed are illustrative only and do not take into account the objectives, financial situation, tax position, liquidity requirements or risk tolerance of any individual investor.
Rainer Michael Preiss – Global Markets Commentary
