Why Turks are IPO-crazy?
The trend nowadays is toward allowing the entire Turkish population to participate in the IPO process. Even though people do not know much about the stock market or financial investment tools, they are investing in new IPO companies because they view IPO stocks as a key “venue to store their money” in a highly inflationary environment.
It seems to me that the “new” investors are trying to offset the effects of a long-running inflation crisis and a tumbling lira. Since the beginning of 2023, the Turkish lira has plummeted by about 40% against the dollar. Although there have been actions like increasing the minimum wage from 8,500 TL to 11,402 TL, the value of the wage is still approximately equal to 400 dollars. There has been no significant change in people’s lives. Life conditions are still the same as in the past or maybe even worse. That’s why people are trying to find new ways to make money, and IPOs are the last stop on this journey.
Thirty companies have sold shares in IPOs on the Borsa Istanbul this year, raising $1.9 billion collectively. To explain why there is a trend like this, I want to provide an example below. As you can see below, there has been about a 113% increase in stock prices.
In light of this information, I want to ask the reader: is there a game where every player wins, and if not, who and how do the losers lose their money?
In the rest of the article, I want to share my ideas about macroeconomic results and market outcomes. Before continuing to read the rest of the article, there is one important point to highlight: I’m not an expert, and these are my personal ideas.
A situation where every IPO’s price increases by about 50–100% and the number of new IPOs increases day by day can have several potential negative consequences for the stock market.
- Market Dislocation and Risk of a Market Correction: Before explaining this point, I want to ask, what is the meaning of investment, or what is the expectation of an investor from a stock? It is clear that investment is a process where an investor buys a part of a business and helps them by providing money. At the end of the process, shareholders and stock owners earn money from the results of the entire process, such as buying a new machine, creating new products, and increasing profits. It is an obvious fact that the “new” investors just buy and sell like traders. A sudden influx of IPOs and their rapid price increases can disrupt the balance of the broader stock market. Existing stocks may be overshadowed, and investors might shift their focus and capital away from established companies to chase IPO gains. In essence, when we think there is only limited money in the stock market, the management of limited resources is the key thing that can improve our stock markets.
- Investor Quality: Although most people think that an increase in investors will have a positive result for the market, I don’t think so. The reason I’m on the opposing side is that I don’t trust “new” investors. They aren’t patient, purposeful, and they act like traders. They can be easily affected by small volatility. Without a doubt, the market will be prone to fall, and the “new” investors will be gone.
- Market Bubble: Rapidly rising IPO prices, especially if they consistently exceed fundamentals, can create a market bubble. A bubble is characterized by inflated asset prices that are not sustainable, and it can lead to a subsequent sharp correction when the bubble bursts.
Under these circumstances, we will observe both positive and negative consequences of this process. My only prayer is that, as before, these companies do not lose their trend in the future and then do not join the group of companies classified as “zombie” companies.
At the end of the day, I have only one question in my mind: how should I create my own strategy? My strategy is simply to participate in every IPO and acquire as many stocks as I can. After the acquisition process is completed, following a short waiting period of 4–5 months, I will implement a strategy such as selling my IPO portfolio and transferring the money to my US-based investment portfolio.
PS: Know what you’re buying; it’s easy to flush your money down the toilet.
for further reading: Turkey leads London and Milan in 2023 IPO race https://on.ft.com/3P6QafA via @financialtimes
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