(Bloomberg) --

Turkish stocks were briefly on the cusp of a bear market after this year’s selloff gathered pace amid uncertainty over a pivotal election in the country. 

The benchmark Borsa Istanbul 100 Index fell as much as 5% on Thursday, taking its decline from an early January record high to nearly 21%. But stocks ended up erasing the drop and rising 0.8% by the close as global risk sentiment improved. 

Turkish stocks have rapidly gone from being the world’s best performers last year to the worst in 2023. The gauge fell 9.7% last month in local currency terms, marking its worst January since 2008 and biggest monthly decline since the onset of the Covid-19 pandemic. 

Best Stocks of 2022 Become World’s Worst Performers in January

Political uncertainty has been a key driver of profit taking following last year’s nearly 200% gain for the index, as presidential and parliamentary elections loom this year. President Recep Tayyip Erdogan faces a tight race that could threaten his 20-year rule, the longest in Turkey’s history.

The election, which was originally scheduled for June but will likely be moved forward as hinted by Erdogan, is a pivotal moment for markets and foreign investors amid concerns over years of unconventional monetary policy. That’s as Turkey grapples with its worst cost-of-living crisis in decades amid rampant inflation, which surged to as high as 85% in 2022 before slowing toward the end of the year.  

While Turkish stocks are still appealing to local investors as a hedge against high inflation, their almost 200% gain last year makes them more fragile in a selloff.

--With assistance from Farah Elbahrawy.

©2023 Bloomberg L.P.