How did Turkey’s exchange traded fund (ETF) emerge from being a solid performer in 2009 to the top-performing ETF for the last month? It can be chalked up to a number of factors working in the country’s favor these days, but the real question now is whether the growth will be sustainable for the long haul.

  • The government is now running a budget of around 5% of GDP after contributing stimulus packages to the recovery. The trade gap has also risen to $3.3 billion as of February. These factors, along with cyclical recovery and inflation pressures, may force the Central Bank to raise key lending rates from its 9% low as early as the second quarter.
  • Turkey’s young demographic could help sustain high levels of growth since a greater number of young people may be put into industries that are more productive. Goldman Sachs Group Inc. economist Ahmet Akarli has estimated that Turkey’s economy could move ahead of Germany’s to become the third-largest in Europe by 2050.
  • The Turkish economy minister stated that the government might revise upward 2010 growth rate forecast to more than 3.5% in a medium-term outlook, according to Turkish Weekly.

Like many countries, for all that Turkey’s economy has going for it, there are still hurdles to surmount to ensure that growth stays in place:

  • The country’s inflation of about 9.6% has reduced bond yields to about 9%, and the Turkish lira has held at around 1.50 per dollar since October 2008.
  • For the short-term, joblessness remains one of the biggest risks for recovery, noting that unemployment rates are expected to rise.

The Statistics Institute doesn’t believe the high growth trend will continue since the fourth quarter had two extra working days and re-stocking inventories both contributed to a higher than normal growth figure. [5 Reasons Turkey ETF Could Be Poised for a Breakout.]

If Turkey plays its cards right and deals with the issues that come up in a swift and strategic way, this country could continue to do well. Have your trend following strategy at the ready, however, if Turkey trips. [How to Follow Trends.]

For more information on Turkey, visit our Turkey category.

  • iShares MSCI Turkey Index (NYSEArca: TUR)

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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