(Bloomberg) -- In a month that saw global stocks roar back to almost all-time highs, Turkey stands out for its dismal performance as the combination of high interest rates and inflation erodes corporate profits.
The Borsa Istanbul 100 Index has tumbled 8.2% in August, making it the world’s worst-performing stock market. Foreign investors are also pulling out more cash, selling $2.9 billion in the three months through Aug. 16, according to data from the central bank.
Turkish investors say the big question is: how bad will the economic slowdown be? With benchmark interest rates at 50% and the country still suffering from inflation running at one of the highest rates in the world, companies are seeing the impact on their bottom line. Ata Investment, an Istanbul-based wealth manager, said it’s anticipating the Turkish companies it follows to report a 28% drop in net income this year.
“The outlook for Turkish stocks is still rather uncertain,” said Burak Cetinceker, a fund manager at Strateji Portfoy. “It’s not clear yet how much of the negative impact is priced in.”
Read: Prominent Businessman Says Turkey Inflation Policy Costly, Tough
The true impact of the Turkey’s tight monetary policy and economic crunch will be more visible in the third-quarter earnings, he added. Until then, in his view, it’s hard to have much confidence in the market.
Other investors are also skeptical. Barings Asset Management cut its position in Turkish stocks during the summer, saying the share prices already reflected the pivot back to policy orthodoxy.
Turkish monetary authorities have so far refrained from discussing the timing of rate cuts, saying they need to see improvement in expectations for prices as well as a sustained decline in monthly inflation. The debate is only likely to intensify as the economic slowdown sets in.
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