Ideas & Debate

Here are some bullish points from Istanbul stocks market

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Investors can glean handy tips from Turkish stock market in terms of domestic participation. AFP PHOTO

Why did the chicken cross Kimathi Street? It wanted to buy an initial public offer (IPO), but instead the poor fowl got its feathers plucked. Feathers only? Its legs got broken too.

This is a sad story from the heady days of 2006-2008 when shares were red hot. A period when retail investors jam packed the brokerage district (at that time) just to get a piece of any IPO.

A record 1.7 million accounts were opened during this period while seven out of the eight new issues got over 300 per cent in subscription.

It was a great time. We imagined that this was the birthing of a retail equity culture. But we were fools to believe that. When the music stopped, everyone fled.

Post-2008, the number of new accounts are yet to break records again. Foreign investors took command of the daily market and their desks became the new centres of power. But all this while, the retail investor has remained hidden in the shadows.

To date, the absence of the retail investor has slowed progress. Annual turnover ratios are abysmal– about eight per cent in 2017.

Put differently, if 80 per cent of the market were to get de-listed today, turnover numbers will still largely remain the same.

Truly, retailers’ passive involvement remains a huge concern. Lovers of the market have long wondered why. Some have blamed their “miseducation as the key problem. That their on-boarding wasn’t proper.

Others believe retailers shipped their money to real estate – in that case, they are the shrewd ones and should be back when things cool-off on that end. Some believe it’s a combination of both. Whatever the case may be, a solution is needed pronto.

Perhaps some inspiration could be found in Turkey, where domestic individual investors have long dominated their local market (Borsa Istanbul).

Last year, for instance, despite owning just a third of traded shares, their stake in equity transactions stood at 70 per cent.

Foreign investors accounted for only 19 per cent while three per cent of the equity volume was generated by domestic institutional investors.

Thanks to the retailer push, Borsa Istanbul managed to turnover 187 per cent in 2017 making it one of the most liquid in the world. As a result, the market was ranked 1st in Europe and 3rd in the world in terms of turnover velocity by the World Federation of Exchange data.

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The BIST 100 Index had a good run too clocking over 45 per cent in returns.

So here are a few points from the Turks; One; at 0.25 per cent, Borsa Istanbul applies some of the lowest transaction fees in stock transactions in the world. Comparatively, our 2.1 per cent looks very expensive.

Two; Internet-enabled trading is a crucial. Internet is Turkey’s domestic investors’ favourite medium for trading accounting for 42 per cent of all equity trading volume. Their branches only make up only 21 per cent of the trading volume.

Thankfully, we’re headed there. A couple of brokers already have online transactional portals. Anyway, it’s a long journey. We’ll get there some day.

To close on a lighter note, the age-old question may finally be answered; why did the chicken cross Kimathi Street? Perhaps it was headed to KFC.