Morgan Stanley warns Borsa Istanbul: The rise is not sustainable

Analysis Summary Morgan Stanley highlighted in its February 25 report that the recent rally in Turkish equities is rooted in rising valuation multiples rather than company profitability.
Analysts noted that this could increase the risk of a short‑term downside correction.
Valuation Multiples Dollar‑denominated multiples rose by up to 25%, driven by higher valuation ratios rather than earnings growth.
The MSCI Turkey index has ranked second in the EEMEA region and fifth globally since the start of the year, but the rally is supported by expanding multiples, raising sustainability concerns.
Macro Economic Indicators Analysts observed that current valuation multiples imply a stronger deflationary process than market expectations, yet the limited change in the two‑year Treasury yield suggests that a clear improvement in interest‑rate cuts or inflation outlook has not been priced in.
Persistently high inflation and rising geopolitical risks could constrain long‑term bond performance.
Banking Stocks The bank maintains a “market‑parallel return” recommendation for Turkey overall, but highlights upside potential in Turkish banking stocks, which trade at lower multiples relative to the broader market.
Strategic Recommendations On the macro side, the bank prefers carry trades over long‑term bonds.
It advises investors to manage risk while noting increased interest in equities and fixed‑income securities, and that February’s high‑frequency data points to higher inflation.