Dec 1, Reuters -- Global emerging market equity fund managers have cut their holdings in Turkish banks to a record low, according to Copley Fund Research, reducing exposure to an economy struggling with a plunging currency and soaring inflation.
According to the data that was filed by 247 actively managed funds with $500 billion in assets under management, the percentage of funds invested in Turkish lenders fell to a historic low of 18.6% last week, a decline from nearly 80% in 2010 when it peaked.
The average weighting allocation to Turkish financials dropped to 0.1% from well above 1.5% in 2010, while the total amount of money invested in Turkish lenders was just under $360 million.
Turkish markets have been roiled in recent weeks with the lira falling 44% since the start of the year and logging its second-worst month in November, hammered by President Tayyip Erdogan's endorsement of monetary easing despite soaring inflation and widespread criticism.
Steven Holden, founder of Copley Fund Research, said that Turkey's questionable monetary policy has chip away at investor confidence, forcing emerging market managers to cut allocations to their lowest levels on record this year.
Emerging market investors are betting on India, Russia and Mexico as their key overweight holdings for financials exposure. Copley Research also showed that 16.6% of funds have an overweight rating on Turkish financials compared to close to 70% in 2010.
The most widely held bank was Garanti Bank, with 7.7% of funds holding a position, but has a very low average weight of just 0.04%. Spanish lender BBVA, which already owns half of Garanti, launched an offer to buy the rest of the Turkish lender in mid-November.
Other financial stocks held by some global emerging market funds were Akbank, Sabanci Holding - which includes a banking division and Yapi Kredi Bank.
The lira plunge has boosted Turkey's exporter-dominated stock market by more than 25% year-to-date, with the main index hitting a new record high on Wednesday.
In 2021 the country's financial sector - a dominant force on its stock market - has lost ground to less than 1% due to investors fear spiralling inflation, falling interest rates and rising bad debt.
When their country runs into trouble, the emerging economy stock markets often surge, expecting companies to ramp up prices to offset spiralling inflation or benefit from a weaker domestic currency if they export overseas.