Turkey lifts four-month short selling ban as war fears ease

• Ban lifted on June 29
• Stock market fluctuating
• Investors remain cautious

Turkish stock exchange authorities have lifted a four-month ban on short selling, signalling confidence that the volatility triggered by the US-Israeli war with Iran has eased. However, analysts say it is unlikely, on its own, to lure foreign investors back.

Borsa İstanbul management announced the removal of the short selling ban at the opening of trading on June 29 with immediate effect.

Short selling is a strategy in which investors borrow shares and sell them, hoping to repurchase them in the future at a lower price to return them to their original owner and profit from the difference in cost.

It had been banned since March 2, the first trading day after the outbreak of the Gulf conflict.

The ban had been renewed on a monthly basis through to the end of June. It was imposed when concerns were raised that the Iran war would be a catalyst for turmoil on local and international markets, with the restrictions seeking to reduce volatility on the Istanbul exchange.

While the ban on shorting may have eased volatility, the Istanbul exchange has had its ups and downs in recent months. After opening the year at just under 11,500 points, the market’s blue chip BIST 100 broke through the 14,000 point barrier in mid-February before falling to around 12,000 points by the second week of March.

It reached a record high of 15,062 on May 11, before peaking and troughing through to just over 14,200 points in the first session of June 29, an increase of 26 percent in the year to date.

The ban on shorting was not renewed as the impact of the Iran war on financial markets eased, says markets analyst İris Cibre.

This may not result in an inbound rush of overseas investment, though, she said: “Even with the ban on short selling lifted, I do not think there will be a flow of foreign capital back into the market.”

The ban was unpopular with foreign investors as it raised issues over market efficiency, she said, but other problems such as lack of depth, manipulation, inflated stock prices or weakness in hedge fund mechanisms, also deter overseas inflows.

“Our stock market problems are much larger than just the short selling ban,” said Cibre.

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The four-month halt to short selling was not the first time the practice had been banned. The exchange suspending shorting from March to August last year, following market volatility sparked by the arrest and subsequent imprisonment of Ekram İmamoğlu, the opposition mayor of İstanbul and his party’s candidate in the 2028 presidential election.

The Turkish economy has also been suffering from high inflation, with the Iran war adding pressure: annual consumer prices rose to nearly 33 percent in May.