What’s driving Istanbul stocks, and how far can they rally?

This article was originally written for Türkiye Today’s weekly economy newsletter, Turkish Economy in Brief, in its Jan. 12 issue. Please make sure you are subscribed to the newsletter by clicking here.

As Turkish markets kicked off 2026 on a positive note, the Borsa Istanbul, Türkiye's stock exchange, wrapped up a record-breaking week and set sail for uncharted waters. The benchmark BIST 100 index closed last week at 12,200.95 points, up 6.11%, a record close both on a daily and weekly basis.

After climbing 14.56% throughout 2025, the BIST 100 has already gained 8.01% in the first six trading days of the new year. The factors supporting this outlook include:

• Inflation came in below forecasts at 30.89% in 2025. Reasonable levels of new-year price adjustments have also reinforced expectations that the “disinflation process will continue.”
• The central bank is now widely expected to cut interest rates by 100 to 150 basis points at its upcoming Monetary Policy Committee meeting on Jan. 22.
• Türkiye’s CDS (credit default swap) risk premium dropped to around 200 basis points, its lowest level since 2018.
• The yield on the 2-year benchmark government bond hit 36.5% last week, testing its lowest levels in recent years.
• Foreign investors ended 2025 with net stock purchases of nearly $2.3 billion. In the week ending Jan. 2, they purchased $102.3 million in Turkish shares.
• The overarching theme for 2026 appears to be "declining inflation and interest rates." This is expected to reflect positively on corporate profitability, financial statements, and equity valuations.
• Within this scenario, credit rating upgrade expectations have begun to gain traction. Garanti Investment’s 2026 Strategy Report noted that, "Barring any sharp deterioration in global liquidity conditions, a sustained spike in energy prices, or a major deviation from the disinflation path, a credit rating upgrade for Türkiye may enter market discussions in 2026."

While the BIST 100 has reached new highs in Turkish lira terms, the latest close in U.S. dollar terms was $282.80. In 2024, the index peaked at $344.70, the highest in a decade, and tested a high of $297.70 last year. According to reports from financial institutions, these levels are seen as resistance points under a positive long-term scenario for 2026.

"Based on 2026 expectations, the BIST 100 is trading at a Price-to-Earnings (P/E) ratio of 5.1, implying a 67% discount compared to emerging market peers. Given the recent drop in risk premium, improving interest-rate conditions, and earnings growth prospects, we calculate a fair P/E ratio of 7.4, which corresponds to a target index level of 16,100 for the BIST 100," Garanti Investment’s report stated.

The report further highlights that moderate interest-rate cuts by the Central Bank, the waning impact of inflation accounting on corporate balance sheets, and the decline in Türkiye’s risk premium are expected to serve as key pricing themes for Turkish lira assets in 2026.

“We maintain our view that equity markets offer long-term opportunities in the current macroeconomic landscape, which is marked by a determined disinflation effort, a downward trend in Türkiye’s risk premium (CDS), the real appreciation of the Turkish lira, and sustained credit rating upgrade potential,” Kuveyt Turk Investment said in its 2026 Strategy Report, setting a target level of 15,250 for the XU100 in 2026.

January 12, 2026 12:26 PM GMT+03:00