The recent election in Turkey that saw the Justice and Development Party (AKB) take office has promp...
The recent election in Turkey that saw the Justice and Development Party (AKB) take office has prompted a rally in the Turkish exchange.
The ISE National 100 Index rose 30% in the week following the election but, as of 19 November, has fallen back slightly following surges that saw it rise 10% in one day.
The rally has brought performance for the year to 15 November to -4.73%, up significantly from the double-digit negative performance before the election.
Fund managers are still cautious on the country however, citing concerns over the new government's inexperience and its economic plans.
Joanne Irvine, emerging markets fund manager at Aberdeen, says that while the new government, headed by Recep Tayip Erdogan, has been positive so far and seems keen to do everything it can to speed Turkey's accession to the EU, she remains cautious.
'But we will always be nervous of a government with no track record and no experience of government,' she says.
'There are two things that slightly worry me. The lack of experience of the new government and the debt to GDP ratio, which is very high and is not sustainable at current interest rates.'
She notes the country's relationship with the US is very important as the US has bailed out Turkey on a number of occasions in the past and Turkey will need to maintain the relationship. A US invasion of Iraq, she points out, would be difficult for Turkey if the war was protracted as tourism revenues would be likely to fall.
Within the Aberdeen Global Emerging Markets fund, Irvine holds one Turkish financial stock, Akbank, having trimmed her exposure following the post-election surge.
The Frontier Markets fund, which invests solely in the EMEA region, holds three stocks: Akbank, Migros, a food retailer, and Aksigorta, an insurance company.
Philip Ehrmann, head of pacific and emerging markets at Gartmore, says the scale of the AKP victory and the fact valuations within Turkey are so cheap means that the election result is unlikely to damage markets.
However, he says the new government is still very young and has not yet laid down concrete policies.
Like Irvine, he feels the AKP is making the right noises so far and takes as an encouraging sign the recent meeting between Erdogan and the Greek leader, the first meeting between Turkish and Greek leaders for nearly 10 years.
The rally was very rapid, however, Ehrmann says, which has made him nervous about committing more funds to the country while valuations remain relatively depressed.
He is overweight Turkey compared to his benchmark, the MSCI Emerging Markets Free Index, and holds three Turkish stocks within the portfolio. Like Irvine, he favours the financial sector, holding thew banks Akbank, Trkiye Garanti and the industrial stock Sabanci.
Ehrmann would like to see hard policies emerging from the new administration within four to five weeks for him to retain confidence in the government.
New, untried administration.
AKP perceived as Islamist.
Turkey has high debt to GDP ratio.
Country's financials are strong.
Market rally followed elections.
Cheap valuations available.
Consider risk capacity
Via The Exchange
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