Despite the Turkish equity market's failure to respond to positive economic drivers, many observers ...
Despite the Turkish equity market's failure to respond to positive economic drivers, many observers believe the medium to long-term view for the market remains promising.
The problem is that the effect of falling interest rates has not yet filtered through to company profits, which investors are carefully examining for signs of recovery before they re-enter the market, says Leila Kardouche, a fund manager with Schroder Global Emerging Markets fund.
She says: 'Since last year's currency devaluation it has been difficult for companies to grow profits. However, we are expecting to see some movement on this within the next few months and expect to see the equity markets catch up with bond yields which have recently fallen substantially.'
Turkish equities, she says, will perform well this year as they are coming off low valuation bases. This, along with a better macro-economic outlook, should push the economy into growth territory by the end of the year.
Leading the charge will be the banks, which make up a big proportion of the domestic index. If they do not perform, then neither will the index. She expects the current deadlock in negotiations between the government and the banks over the recapitalisation of non-performing loans, which have been crippling the banking sector, to be resolved shortly.
Kardouche feels the rebound, when it comes, will not be huge this year and may simply reflect a rebuilding of inventories, which have been run to low levels. Although she adds it should still be sufficient to attract foreign investors, who had their fingers burnt in 2000 and 2001 when GDP contracted in real terms.
Kardouche continues: 'The Turkish government and the IMF would like to see growth of 2.5% or 3% this year, which we think is achievable. The real bonanza year is likely to be 2003, which could see growth of 4.5% plus ' if our view of the market proves correct.'
Richard Hopkins, head of global emerging markets at Henderson Global Investors, is also bullish on Turkey. Hendersons' emerging market funds are all heavily overweight Turkey, although Hopkins says he can see threats to his positive view on the country. The ability of an emerging country to meet its debt obligations is coming under greater scrutiny following developments in Argentina. Increasingly, says Hopkins, debt sustainability is becoming a function of economic growth.
He says: 'Gauging the ability of a country to meet its debt payments is no longer about whether it has access to bailout packages from the IMF, but whether the economy is capable of growing sufficiently to raise tax receipts to the point where repayments can be met without resorting to bailouts. In Turkey's case, however, although it is a danger, I do not think it is likely. The government is keeping a tight control over monetary and fiscal policy and is also taking the painful steps necessary to restructure the banking sector.'
Turkey's new found international significance as Nato's only Muslim member and neighbour of Iraq also has an impact when considering the current investment risks of Turkish equities, believes Hopkins.
He adds: 'The global political community has no desire to see another Argentina-style situation in Turkey. There would be a lot of behind-the-scenes support to ensure Turkey doesn't blow up.'
Government pushing banking reforms.
Inflation and interest rates falling.
2.5% GDP growth predicted this year.
HL and Liberty SIPP slowest
Lifetime and annual allowances
'IFAs bore the brunt'
'Recovery or boom'