Morgan Stanley: Turkish Stocks Have Gone Off Reality, Not Sustainable

Performance Since New Year Morgan Stanley’s note dated 25 February states that Turkish equities have increased by 25% in US dollar terms since the start of the year.
The rise is largely attributed to expanding multiples.
MSCI Turkey Index Performance The MSCI Turkey index delivered a total return of 25% over the same period, positioning Turkey as the second-best market in the EEMEA region and the fifth globally.
Valuation Risks Analysts point out that Turkish equities’ valuations have diverged from the local currency bond market, indicating a short‑term downside risk.
They argue that the current multiples price in a much stronger deflationary process than market expectations.
Macro Economic Indicators The yield on the 2‑year Turkish Treasury has remained largely unchanged since the New Year, suggesting that expectations for rate cuts or inflation improvement have not been priced in.
Investment Recommendations Analysts see a potential downward correction to align Turkish stocks with more realistic macro expectations.
They maintain a “market‑parallel return” view for Turkey within EEMEA.
On the macro side, they prefer carry trades over long‑term bond positions, citing persistent inflation and rising geopolitical risks that challenge long‑term bond performance.