FOREIGNERS sold a total of USD 5.5bn worth of shares in the first eight months of the year. I highlighted this before: If foreigners are selling their assets, it is a signal of two economic expectations. Firstly, it implies that the stock prices might fall further. Secondly, it signals that the foreign exchange could appreciate further. Surely, it’s possible to conclude by merging these two expectations.

I prepared a table regarding the foreigners’ exit by taking the average of the foreign exchange rate and the index in which the foreigners made their sales in the first eight months of the year. I opt for weighing by considering the weekly exit numbers. I also put a note on the table: on a monthly basis, neither the index, nor the foreign exchange rate coincides with the averages, because I predicated the weight of weekly amounts when I made the monthly average calculation.

A USD 416MLN ADVANTAGE

The average index level at BIST100 was 1,086 in the first eight months of the year. Foreign investors sold shares from a much lower level compared to the index average. Their exit level average was 1,050 in the same period of this year.

In this case, foreigners suffered a loss since they sold their stocks for a cheaper price than the average.

However, there’s another important factor that determines profit and loss for foreign investors: the level of the foreign exchange.

Foreign investors exited 1,050 indices on the average of the first eight months of the year but converted the TRY proceeds to USD from a TRY 6.66 foreign exchange rate.

Foreign investors sold a total of USD 5.5bn in stocks in the first eight months of the year. I converted the weekly sales to TRY from that week’s average exchange rate of USD and found that the foreigners sold a total of TRY 36.6bn worth of stocks.

IF THE SALES TOOK PLACE NOW…

If the foreigners didn’t spread the sales to eight months and had done it on one day on September 8…

The index increased by 3.8% to 1,090 on September 8, from the eight-week average of 1,050. The TRY 36.6bn sales in the first eight months increased by 3.8%, so the foreigners’ sales amount to TRY 38bn now. However, in addition to the price, or the index, the foreign exchange rate also increased simultaneously. When we divide TRY 38bln to that day’s TRY 7.48 exchange rate, we get USD 5.1bn.

This is the foreigners’ profit. Foreign investors received USD 5.49bn by converting that TRY 36.6bn from the stock sales at the TRY 6.66 foreign exchange rate. If sales were made on September 8, they would’ve gained TRY 38bn, but since the exchange rate of USD increased to TRY 7.48, the amount would be USD 5.74bn. There’s a USD 416mln difference, a profit that foreigners gained by converting their gains when the foreign exchange was relatively lower.

FOREIGNERS PROFIT EITHER WAY

Let’s say the index is the price of ordinary stock. Foreign investors sold 34.8m in stocks from TRY 1,050 in eight months and earned TRY 36.6bn in revenue.

Foreigners then converted this revenue from a TRY 6.6 foreign exchange rate and got USD 5.5bn.

Then comes September 8. What kind of a scene would we see if foreign investors decide to invest in Turkish stocks again?

Foreigners left the Turkish market with USD 5.5bn in revenue. Now if they invest in the Turkish stock market with the same foreign exchange and convert that amount to TRY at TRY 7.48, they would get TRY 41.1bn. They could buy a total of 37.7m stocks with TRY 41bn, TRY 1,090 each. So due to the foreign exchange increase, foreigners can buy 3m more stocks with the same money.

But would they do it? We don’t know for sure, but if they do, it’s because the tension in Turkish foreign policy, its impact on the economy and possible pandemic-related issues have been pushed into the background, and they believe that the TRY will not lose value anymore.

But if they don’t, if foreign investors continue to exit the Turkish market, what happens then? The answer is suggested in the previous paragraph.