Confidence has improved in Turkish equities since the apparent end of the conflict in Iraq but the g...
Confidence has improved in Turkish equities since the apparent end of the conflict in Iraq but the government's commitment to reform remains key to the markets' overall outlook.
From 3 January until 18 April, Turkey's ISE National Index returned 2.14% in euro terms, while over the same period the Dow Jones Euro Stoxx fell by 6.54%, according to Bloomberg.
This shows Turkey's relative performance has improved over the latter part of the 12 months to 18 April, during which period the ISE Index returned -37.32% against -33.83% from the Euro Stoxx.
Tom Elliott, strategist for JP Morgan Fleming Asset Management, says it is essential Turkey attracts foreign investment. He adds Turkey has a lot of potential, if foreign investors can obtain the legal guarantees they require in terms of investment.
Helen Taylor, emerging markets fund manager for Isis Asset Management, agrees that international investment is vital, but says the current government has not yet shown it understands this issue. She notes that valuations are not cheap, with the market returning to its relatively expensive pre war-price levels.
Taylor believes an end to the conflict in Iraq has removed a huge source of uncertainty for investors in Turkey, while the apparent victory of coalition forces is reasonably positive.
'Sentiment has improved. In a recent poll by the Central Bank of Turkey, confidence was shown to have increased, there is belief the currency will become stronger and analysts are starting to become more positive,' she adds.
Elliot notes that shares in Turkey's IMRB 100 index climbed 6.5% over the week as the war in Iraq reached its final stages and aid packages for Turkey started to come together. Sentiment was lifted by the approval of $1bn in US grants and signs that the IMF would soon release a delayed $700m loan tranche it was holding until it saw evidence Turkey was complying with reform conditions.
Taylor adds that investors will focus on the Turkish government's progress on reforms and how it deploys the funds from the IMF and US aid packages.
While the government outlined its reform plans in a letter of intent on 18 April, there is concern over its ability to keep its promises. The focus of the letter includes structural reforms aimed at improving fiscal management and control, rationalising the public sector, simplifying key legislation, as well as increasing the role of private capital through privatisation.
The reform programme is concentrated on May and June, while the schedule for the remainder of the year is lighter.
Elliot says: 'Although the finance minister announced that budget targets for the first three months of the year had been beaten, investors still remain concerned about the tentative relationship between the Turkish government and the IMF.'
Elliot adds: 'Foreigners investing in Turkey do not always receive a co-operative reception, but there is no reason why it could not be the manufacturing centre for Europe. It has preferential trade conditions and a cheaper workforce.'
Taylor agrees Turkey has huge potential in terms of manufacturing, with some foreign firms exploiting the country's cheap manufacturing costs by purchasing big brand names and moving the manufacturing operations from Europe into Turkey.
Cash injections from US and IMF.
Strong potential for manufacturing.
War did not have huge impact.
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