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AK Investment: Model Portfolio and Strategy on the Stock Market

The contribution of foreign investors may remain weak

In the next period, the divergence in developed countries can be expected to continue and the issue of economic recovery will be bought, especially in US equities. However, both the rising trend in US bond yields and the national outlook point to a volatile period for investors in the Turkish stock market. Considering this situation, we anticipate there will be selective movements in the stocks, which present a strong history in BIST, and BIST will remain in the band movement for a while.

New portfolio combination

By adding the shares of ARD Bilgisayar and Aselsan to our portfolio, we are removing the shares of İndeks Bilgisayar, Koç Holding and Tav Havalimanları from the portfolio.

We believe that ARD Bilgisayar will be relatively less affected by the turmoil in the markets as a small, fast growing software company that works primarily with tenders. Similarly, we see Aselsan, operating through tenders and unaffected by market fluctuations, so strong under current conditions.

On the other hand, depending on the potential for declining profitability following the rapid rise of Indeks Bilgisayar, the risks to internal demand at Koç Holding and the new equity criterion (loss of return of the share of more than 15% compared to the profitability benchmark), we are removing TAV Airports shares from the portfolio.

Performance: we issue bank shares

After the upgrade, the performance of the model portfolio has recovered. On March 23, we removed the bank stocks from our model portfolio, which we published on March 2. The performance of our portfolio according to the benchmark index was -3.1% in the first three weeks of the month and 3.4% in the following period. After March 23, Ereğli, Indeks Bilgisayar and Migros made the largest contribution to the portfolio, while Koç Holding and Tüpraş were the stocks that underperformed.

After this result, the total profitability of our portfolio of models (since the beginning of its publication 204) is 430%. In the same period, the BIST total return index gained 160%. Consequently, our portfolio is seen to perform 104% above the benchmark. BIST100 total return index stock prices are calculated by adjusting dividend payments.

Investors’ appetite for risk is more selective

Having struggled to break above the 1,600 level, the BIST-100 index fell to the 1,400 – 1,500 band in the second half of March due to rising concerns about inflation and foreign sales. The rise in the interest rate on US 10-year bonds that began in mid-February and reached 1.7% in March had already reduced risk appetite for emerging market assets. However, in March, the Turkish lira depreciated above other developing currencies and was down 11% compared to the dollar and the euro. In March, the S & P500 and Eurostoxx indices rose 4.2% and 3.2%, while the MSCI-EMI index fell 1.7%. The fall in BIST-100 was 15% in TL terms, while it exceeded 20% in dollar terms due to the effect of the exchange rate.

Rising 10-year bond yields make valuations difficult

Along with the exit abroad, the interest on the 10-year TL bonds also reached 18.2%, 500 basis points more than the 13.3% at the beginning of the month. Considering that the risk-free rate of return on analyst stock valuations is around 14%, it won’t be surprising to see an increase in the discount rate of 200 basis points or more and a decrease in target values. in the next period. .

The market calmed down for now

Non-residents sold roughly $ 0.9 billion in stocks in March (in addition to $ 0.8 billion in bonds and $ 5.4 billion in net swaps), mainly after March 19. Thus, since mid-January, slightly more than the $ 1.9 billion of foreign entry that came into action in the November-January period has been returned. Despite the sales abroad, it seems that the national saver switched from foreign currency to TL, balancing the dollar / TL rate a bit. The general expectation of the market is that the policy rate, which the CBRT dropped to 19% with an increase of 200 basis points on March 18, remains at this level at the April 17 meeting.

March is favorable in terms of rainfall but tourism is still risky

Concerns about agricultural production due to the drought, which came to light at the beginning of the year, were removed from the agenda with heavy rains in February and March. On the other hand, the Covid-19 restrictions, which were relaxed in early March, were reinstated after the sharp increase in the number of cases. While it is positive to reach 10.1 million people in vaccination, the number is still limited, indicating that the restrictive measures will continue for a while. Furthermore, the slow progress of vaccination studies in Europe in general can be considered as a risk factor before the tourist season.

Companies that generate income in foreign currency continue to stand out

Market conditions caused investors to turn to industrial companies that provide foreign currency income and do not have foreign currency debt. Against this backdrop, as we noted in our March 22 update, food retail companies stood out for their weak elasticity of demand alongside steel, petrochemical and IT stocks. Metals and computer stocks were among the indexes that delivered the highest returns in March, while cement and REIT stocks also drew attention to expectations about auto stocks and the Channel Istanbul project, which drew demand for the exchange rate. The worst performance in March came from banks, insurance and equity holdings. In March, while the value of 38 shares increased by BIST-100, the price of 62 shares decreased.

The course of inflation and 1Q21 results will be followed

The course of inflation for the remainder of the year will be important to an investor’s risk appetite.

Meanwhile, the PPK meeting on April 15 will be closely watched. Apart from that, April differs from the previous month in terms of global and regional geopolitical developments (April 22 Climate Summit, US-China relations, tension in the northern Black Sea). Additionally, banks and some industrial companies will begin to announce their 1Q21 financial results in the last week of April. We expect sales from foreign investors to calm down after March. With the public offerings, it can be expected that the market weight of national investors, which has increased by 250 thousand since the beginning of the year and exceeded 2.2 million (1.2 million at the end of 2019). We continue to have a positive view of steel and petrochemical stocks, which reflect the expectation of a global recovery, and TI stocks that offer high growth potential. Also, aviation and tourism stocks may come to the fore due to the Covid-19 vaccination towards the end of the month. We believe that the possible recovery of bank stocks will be delayed for a while.

Explanation: Starting this month, we are introducing a new benchmark to provide more discipline in selecting stocks in the model portfolio. Consequently, if the loss of the stocks we add to the portfolio remains above 15% based on the benchmark for a few days, we will remove these stocks from the portfolio regardless of the long-term expectation. In this context, we have also eliminated TAV Airports from the portfolio in this study. On the other hand, we kept Turkcell’s shares in our portfolio, considering the possible impact of the subsidiary’s public offering plan for the next period as an exceptional situation.

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