Turkish stocks and the largest Turkey ETF continued to weaken Monday and may look cheap, but bargain hunters don’t seem to be taking the bait.
The iShares MSCI Turkey ETF (NASDAQ: TUR) fell 3.5% and is trading near its lowest since December. The ETF declined 16.6% over the past three months and is down 10.5% year-to-date.
Turkish stocks are now trading at their cheapest in almost a decade as the market heads toward its largest monthly pullback since May 2016, Bloomberg reports.
For example, TUR is now trading at a 8.15 price-to-earnings and a 1.25 price-to-book, compared to the S&P 500’s 16.93 P/E and a 2.84 P/B. The benchmark Borsa Instanbul 100 Index is trading at a 7.2 P/E.
After celebrating President Recep Tayyip Erdogan’s call for snap elections, which helped provide some political relief, investors are reconsidering the reason behind the rally. Many are still worried about an overheating economy and some analysts are doubting the easy victory for the incumbent.
Investors were “operating under the assumption that President Erdogan will win in the first round and the Ak Party-MHP alliance will get a majority,” Anastasia Levashova, a fund manager at Blackfriars Asset Management, told Bloomberg, referring to the ruling party and its allied nationalist group. “The market started to see new factors.”
Last week, 15 lawmakers from the main position CHP switched over to the newly formed nationalist spinoff, Iyi Party, revealing signs of cooperation among a shacky opposition to challenge Erdogan.
Additionally, speculation that former president Abdullah Gul could also step in to shake things up. Gul has recently criticized the government’s clampdown on dissent after a failed 2016 military coup.
Risks Ahead for Turkey
Given the recent turn of political events, Levashova argued that “there are high risks” that Erodgan will fall short of the 50% votes required for a quick win.
Meanwhile, financial sector stocks were weakening on concerns that the central bank is behind the curve in raising rates and a looming sentence of Turkish banker Hakan Atilla, whom was convicted of using his position to evade U.S. sanctions in Iran.
Some investors are also concerned with the country’s widest current-account deficits among G20 nations and a double-digit inflation, despite the economy expanding 7.4% last year.
“The balance between growth and the current account has deteriorated recently and it cannot continue like this,” Sertan Kargin, director of research at Global Securities, told Bloomberg. “Uncertainty regarding the efficiency and capability of the new government that will be formed after the vote to address this problem is weighing on the BIST 100 Index, and it seems like it’s going to be the case until elections are over.”
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