The collapse of the Turkish economy has created buying opportunities in emerging countries, accordin...
The collapse of the Turkish economy has created buying opportunities in emerging countries, according to Phillip Ehrmann, head of emerging markets at Gartmore.
He says: "The initial reaction to the Turkish collapse was a strong mark down to every market with an economic question mark over its stability."
The Turkish stock exchange has fallen by 26.64% in sterling terms from the end of December to 7 March. Relations between Prime Minister Bulent Ecevit and President Ahmnet Necdet have been strained since Necdet was appointed last year. This came to a head after he accused the Prime Minister of failing to deal with corruption, thrusting a copy of the constitution into his face, Ehrmann describes. The result was a record run on foreign exchange reserves of the Turkish Central Bank and the eventual devaluation of the lira.
One of the biggest banks in Turkey, Ulusal Bank, has been forced into the hands of the Banking Supervisory Board after debts overtook assets and it became unable to fulfil its obligations. Turkey was already reeling after curtailing the economic crisis that struck last year when it was forced to take an emergency $7.5bn loan from the IMF.
Ehrmann says the effects of the meltdown have been felt as far afield as Argentina and Russia. This presents good opportunity for investment because Russia, for instance, has been marked down without actually sharing that much in common with Turkey.
Ehrmann says Russia had shown a strong macroeconomic performance last year and is looking in "pretty good shape" at the moment. However, he believes that the lack of transparency, and the quality of some Russian companies, remain a threat to the unwary investor.
But not every country in the emerging Europe basket has been affected by the Turkish crisis, according to Ehrmann. He says: "Poland and Hungary have managed to avoid most of the ripple effects of events in Turkey. Both operate on a different plane to Turkey because they are more closely linked to the EU."
Jasper Crone, investment analyst at Foreign & Colonial emerging markets, says: "Poland is in a fairly robust position at the moment and events in Turkey have caused only slight nervousness in the markets."
According to Crone, the macroeconomic position of Poland is far more impressive than most of its peers. He says: "It demonstrates decent growth prospects, and so far this year has seen growth at 3.5%-4%. Furthermore, the negative indicators which were present last year, such as high inflation and a high current account deficit, are no longer a threat."
Crone expects interest rates, currently at 19%, to be cut by about 3% this year. That Poland lags slightly behind in terms of restructuring may also, Crone believes, be good for the economy.
A strong domestic investor base provides stability for the Polish market. He explains: "Every worker in Poland must belong to a pension fund and these funds make up 8% of the freeflow of the Warsaw stock exchange. This helps keep the market stable."
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