Turkey ETF: It'll Take a While to Recover

As has been widely reported, the iShares MSCI Turkey ETF (NasdaqGM: TUR) is one of this year’s worst-performing emerging markets exchange traded funds. TUR, the lone US-listed ETF dedicated to Turkish equities, is down more than 26% over the past month as Turkey’s lira continues sliding and monetary policy responses aimed at stemming the currency’s slide are seen as ineffective.

Down more than 54% year-to-date, TUR currently resides nearly 44% below its 200-day moving average and 56.55% below its 52-week high.

To help remediate the currency crisis, the Turkish central bank lowered the reserve requirement for banks by 250 basis points to improve liquidity conditions.

“The lira’s sharp fall will force a rebalancing of Turkey’s economy through lower growth and a narrowing of the current account deficit,” Fitch Ratings says. “We have cut our growth forecasts for 2018-2020, and see significant and widespread downside risks.”

Grim Outlook for Turkey

Amid Turkey’s economic calamity, Fitch dramatically slashed its expectations for Turkey’s economic growth next year.

“We now expect real GDP to increase by 3.8% in 2018 and 1.2% in 2019, with a quarterly contraction projected for the final three quarters of 2018,” said the ratings agency. “These rates of economic growth are 0.7pp and 2.4pp lower, respectively, than our assumptions when we downgraded Turkey’s sovereign rating to ‘BB’/Negative on 13 July 2018. We expect that growth will recover somewhat in 2020, to 3.9%, but will remain below the trend rate. Our forecasts are subject to considerable uncertainty. Risks to our baseline scenario are primarily to the downside and include policy missteps, heightened financial stress in the private sector, geopolitical tensions and potential capital flight.”