Turkish Markets Drop on Regional Conflict
Turkish equities plunged over 5% as regional conflict escalates, prompting emergency central bank support for the lira. The market shock comes as new data shows Turkey's GDP growth slowed to 3.6% in 2025, with tight monetary policy curbing domestic demand.
The market sell-off was triggered by escalating regional conflict, specifically coordinated US and Israeli strikes on Iran, which resulted in the death of Iran's Supreme Leader. In response to the market volatility, Turkey's Capital Markets Board temporarily banned short selling on the Borsa Istanbul and lowered the minimum equity maintenance ratio for margin trading to ease pressure on investors. The central bank has actively supported the lira by selling foreign exchange reserves and using derivatives, with Turkish lenders reportedly selling around $5 billion on Monday morning alone. This intervention follows a pattern of the central bank using reserves to stabilize the currency during periods of high volatility. Treasury and Finance Minister Mehmet Şimşek has assured that all necessary measures are ready to ensure market function and that the economy remains resilient to external shocks. This market turbulence comes after a period of slowing but still positive economic growth, with GDP expanding by 3.6% in 2025, driven primarily by strong domestic demand and construction. However, net exports have been a drag on the economy, with exports declining by 0.3% while imports rose by 4.9% in 2025. The International Monetary Fund has projected a 4.2% growth rate for Turkey in 2026. Venture capital investment in Turkish startups saw a significant 45% decrease in 2025, totaling $589 million across 306 deals, mirroring a broader European slowdown. Later-stage funding was particularly affected, with no Series C or later rounds recorded. Despite the domestic slowdown, startups founded by the Turkish diaspora successfully raised $1.1 billion and produced three new unicorns. Despite the overall decline, specific sectors like fintech, gaming, and AI continue to attract investor interest. In the first quarter of 2025, AI-focused startups captured over half of the total VC funding. Fintech and gaming, however, accounted for 68% of all capital invested throughout the year. Notable fintech deals in 2025 included Midas raising $80 million and Sipay securing $78 million. There is a growing focus on fostering deeptech and climatetech innovation within Turkey. Initiatives like the J-START venture capital fund, a collaboration between ALJ and Sabancı Ventures, are prioritizing investments in deeptech startups emerging from universities. Additionally, institutions like Istanbul Technical University's ITU ARI Teknokent are partnering with international bodies to help Turkish deeptech scale-ups access European markets. In climatetech, renewable energy is a key area, with renewables providing 56.7% of Turkey's electricity in 2025. The Turkish government has actively encouraged the startup ecosystem through various incentives, including tax advantages for large enterprises that invest in venture capital funds. This has contributed to the establishment of 278 VC funds in the country. Programs like the TÜBİTAK BiGG Investment-Based Entrepreneurship Support Program also provide significant capital support to early-stage technology entrepreneurs.
