Emerging markets might present savvy investors with an opportunity that could present a value-oriented play along with built-in growth prospects given the way the space has succumbed to the pangs of the Covid-19 pandemic. However, investors may want to tread lightly when it comes to certain economies like Turkey.
“Turkey is standing alone in emerging markets as its economic woes intensify, Bloomberg reported on Monday, citing economic and financial data,” an Ahval news article noted. “The country is increasingly isolated from other developing countries, the news wire said, referring to indicators such as money supply data, inflation, foreign exchange reserves and the current account.”
The report also noted that the “money supply has expanded faster than any other emerging market, while its stock of foreign currency has eroded at a quicker pace than any peer. Furthermore, none of its rivals have a central bank interest rate that is below the rate of inflation, Bloomberg said. International financial institutions such as Citigroup and Fidelity now consider Turkey separately from the rest of the emerging market asset class, according to Bloomberg.”
“Turkey macro is now diverging significantly from emerging market majors in two important fronts: inflation profile and current account balance,” said analysts Luis Costa, Dumitru Vicol and Sara Felizardo of Citigroup.
If investors are sensing a buy-the-dip opportunity, they can look to funds like the iShares MSCI Turkey ETF (NasdaqGM: TUR). TUR seeks to track the investment results of the MSCI Turkey IMI 25/50 Index.
The fund generally will invest at least 90% of its assets in the component securities of the underlying index and in investments that have economic characteristics that are substantially identical to the component securities of the underlying index. The underlying index consists of stocks traded primarily on the Istanbul Stock Exchange (ISE).
- Exposure to a broad range of companies in Turkey
- Targeted access to Turkish stocks
- Use to express a single country view
Before investors start diving headfirst into EM debt, they do need to understand the risks associated with overseas bonds. A couple of areas are the liquidity and volatility these bonds can be subject to with respect to their markets.
An option to consider in the EM high-yield bond market is the VanEck Vectors EM High Yield Bond ETF (NYSEArca: HYEM). HYEM seeks to replicate the ICE BofAML Diversified High Yield US Emerging Markets Corporate Plus Index, which is comprised of U.S. dollar denominated bonds issued by non-sovereign emerging market issuers that have a below investment grade rating and that are issued in the major domestic and Eurobond markets.
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