At a time when many investors are eschewing emerging markets equities and ETFs, the iShares MSCI Turkey ETF (NasdaqGM: TUR) may not be the first ETF investors are thinking about. However, some market observers see opportunity with TUR.
TUR, the lone US-listed Turkey ETF, is lower by 7% year-to-date. Turkey’s was particularly vulnerable to volatile moves associated with geopolitical risk in the Middle East as the country is a neighbor of both Iraq and Iran, and it has close political ties to Tehran, especially as the two countries alongside Russia try to find a solution to the ongoing civil war in Syria. Consequently, Turkish markets were one of the first to suffer a severe blow following the U.S. airstrike that killed a key Iranian general.
However, it appears some investors are looking past those vulnerabilities.
“It’s a challenging time for Turkey’s President Recep Erdogan. In the East, the veteran strongman is fighting Syrian/Russian forces to keep millions of refugees out of Turkey. In the West, he’s trying to disgorge some of the millions of refugees he already hosts onto a reluctant (to say the least) European Union,” reports Craig Mellow for Barron’s. “Domestically, he has restored economic growth after a punishing recession, but revived the inflation and current account deficits that caused the downturn in the first place.”
TUR Turbulence Ebbing?
Analysts also argued that positive developments over the current account deficit, the rebalancing process in the economy, recent interest rate cuts and optimism over U.S.-China trade negotiations further strengthened the rally in riskier emerging market assets like Turkey.
“Yet investors could be paid handsomely for entering this risky morass. Ten-year sovereign local-currency bond yields have jumped nearly two percentage points over the past month to 11.3%. Stocks have fallen 13% over six weeks. That looks like a good trade to some managers, for the moment,” according to Barron’s.
The $277 million TUR follows the MSCI Turkey IMI 25/50 Index and holds 43 stocks. TUR allocates 28% of its weight to financial services stocks and over 37% of its combined weight to industrial and consumer staples names, according to issuer data.
“Turkey’s resilient economy is also picking up steam, or was pre-coronavirus. Economists expect growth around 3% this year, from zero in 2019. What Covid-19 takes in tourist dollars it may give back through cheaper oil imports,” according to Barron’s. “The question is how long investors can enjoy 11%-plus interest before the next major disruption. Erdogan did not stay on the economic wagon long after the last one.”
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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.