Why is there no demand for cheap stocks in the stock market?

Why is there no demand for cheap stocks in the stock market?


The stock markets, under selling pressure for a while, caught their breath last week. The BIST 100 index in Borsa Istanbul ended the week with a gain of 2.80% to 2,438.84 points. The S&P 500 closed the last trading day of the week at 4,158.24, gaining 2.5%. It recorded its best week since November 2020, up more than 6.5% since last Friday. The S&P 500 also erased its May losses.
The Dow Jones Industrial Average also rose 576 points, or 1.8%, to close at 33,212.96 on Friday. The Nasdaq Composite Index rose more than 3% to 12,131.13. The dove tone of the Fed minutes played an important role in this development. In addition, the flight of cryptocurrencies and the fact that stocks are still part of the investment tools that protect against inflation has accelerated the return of the stock markets.

The direction of the stock market has not yet recovered

However, since there are no strong expectations yet, it is worth considering rising stock markets as a reaction at this point. Next week, domestic inflation and external nonfarm payrolls in the United States will be tracked. Commenting on the latest stock market developments, Zeynel Balcı made the following predictions from his column in Hürriyet:
“As the bullish movement continues in the stock market, price-earnings ratios continue to remain low. In other words, it would be correct to define exchanges as technically premium but fundamentally cheap. Graphically, the gap between the BIST100 index and the BIST100 price/earnings ratio has widened since the start of the year. Although price/earnings ratios have declined due to strong first quarter balance sheets, this has not been reflected in stock prices. Low price/earnings ratios should increase demand for (cheap) stocks. On the other hand, the ongoing outflow on the stock market has further widened the gap. The price/earnings ratio of the BIST100 index is around 6.50 and is quite low compared to stock markets in other countries. Some locomotive bank and portfolio stocks have price-earnings ratios of 2-3. In other words, its market value is as much as its profit over 2-3 years. However, the lack of serious buyers is linked to expectations and increased demand. Supply and demand determine the price. It is very important that there is sufficient demand for the low price/earnings ratios to reach their value. The fall in the foreign currency custody rate of Borsa Istanbul shares to 35% seems to explain this point of view somewhat.

The Way to Overcome Stock Market Crises

Zeynel Balcı’s technical expectations for the index are as follows: “Despite the selling attempts, the reaction of the index continues. Initial supports are at 2,425 and 2,400 points. These levels can become significant in the short term. The next supports are seen as 2.370 and 2.345. Initial resistance for the reaction uptrend stands at 2.470. This trend resistance will need to be breached for the continuation of the exit. The next resistances are at the 2500 and 2560 levels. Although the index continues to react, attempts to sell can be seen at the resistance levels.

Why are global stock markets soaring?

In Ufuk Korcan’s article under the title “2,460 points must be exceeded for further stock market upside”, the expectation of the index is as follows: “The risk created by standing below the support The BIST 100 index’s 2.408, which rallied with the rise in the exchange rate, has disappeared for now, holding the support at 2.354. However, the index started a short-term downtrend on April 22, 2022. To speak of real relief, this trendline must first be crossed upwards. For this, one needs to go above the 2.440-2.460 point band with volume and see some voluminous closes above this range. If this happens, levels of 2,480 to 2,500 points can be targeted in the first stage. In the downward movements, it is useful to be cautious if it is below 2.408 points.

BIST shares gained 2.80% on average this week

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