An article in the Financial Times titled “Turkey’s lopsided economy remains attractive to investors,” gained my interest recently. The last time I wrote about Turkey it was just after the failed July coup, and I had pondered what effect the political uncertainty would have on the investor. Well, apparently even after Moody’s joined Standard and Poor’s and Fitch Ratings in lowering the boom on Turkish debt into junk and more junk territory, investors still have an appetite for Turkish equities. The Istanbul Borsa has a YTD return of about 7% and the popular Turkish ETF iShares MSCI Turkey (NYSE:TUR) has a one-year return of about 13%.
On Monday September 26, Turkey auctioned 10 year bonds with yields of 9.94%, and there was high interest in them. According to a Barron’s article written by Dimitra DeFotis, in an interview she did with Roxana Hulea (a Societe Generale Currency and Rates Strategist) it is her belief that when it comes to recommending Turkish bonds:
“We have a long recommendation on the five-year, local currency-bond maturing in February 2021. It has a yield to maturity of about 9.2% at the moment.”
I find this very interesting, because I had the feeling that with all the pressure being applied to the Turkish economy right now, that both bond and equity investors would be gun shy. Apparently not. Mr. Erdogan, in his inimitable style, believed that the ratings were politically motivated by the West, seeking to damage his country’s image.
The Turkish deputy minister pointed to the strong demand for the bonds, saying that the macroeconomic fundamentals of the economy are strong. According to Jonathan Friedman, an analyst at Stroz Friedberg in the same FT article, said “The other big emerging markets — Russia, Brazil, Iran — pose even greater challenges due to a mix of sanctions, recessions and political paralysis. So investors realize that Turkey is going through a tough time. But they look at the size of its consumer market, and it remains attractive.”
And in that answer, I believe, lays the truth. The consumer has not dented his appetite, and is still spending strongly as their appreciation for high end goods is far from waning.
So are Turkish equities and in particular the ETF a buy? I would have to say yes.