Knocking Two Digits off Turkey's Stock Index May Refresh Rally

  • Similar move 20 years ago prompted 64% surge in benchmark
  • Creates perception index has got cheaper: Buyukdemir of Ceros

Turkey’s stock exchange is considering cutting the last two digits from its benchmark index. Giving investors a smaller number to work with could trigger further gains for local equities, if history is any guide.

The Borsa Istanbul 100 Index’s ascent to 100,000 points on June 13 prompted regulators to dust off an idea first used 20 years ago. As the benchmark closed in on six figures back then, the bourse decided to draw a line through the last two numbers. The rebasing at the start of 1997 sparked a 64 percent jump in the month that followed, with the index more than tripling during the year. The exchange is considering trying the approach again and discussing it with local market participants, Borsa Istanbul Chairman Himmet Karadag said by phone.

“It’s not something that will happen within a few days, but we’re working on it,” Karadag said.

While adjusting the index reading has no impact on fundamentals surrounding Turkish stocks or the way market professionals assess valuations, it leads to “a common perception that the index has got cheaper, fueling momentum in inflows,” said Baris Buyukdemir, general manager at Istanbul-based Ceros Securities.

After a 27 percent advance this year, Turkish stocks still trade at a discount of almost 30 percent to emerging-market peers. That could narrow if authorities go ahead and trim the index level.

“These are the kind of steps that can kindle interest in Turkish equities by boosting momentum with fresh pricing behavior,” said Tugberk Citilci, head of research at GCM Securities in Istanbul.  “Based on behavioral finance studies, such moves can have an impact on investor sentiment similar to stock splits.”

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