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Coronavirus turns out to be a gift for Turkey

While infection from poorly-guarded Eastern and Southern provinces is a possibility, Turkey is one of those countries where money can be parked –for the time being—while investors assess the potential damage from the Wuhan infection

Coronavirus turns out to be a gift for Turkey

While Turkey’s equities sold off in tandem with global risky assets today, the coronavirus infection may actually be a gift for Turkey.  Turkey’s main import item Brent oil declined below $60/barrel, reducing the import bill as well as mitigating some of the building inflationary pressure. So far, no cases have been detected in Turkey. While infection from poorly-guarded Eastern and Southern provinces is a possibility, Turkey is one of those countries where money can be parked –for the time being—while investors assess the potential damage from the Wuhan infection.

 

Turkey has other things going for it as well.  On Monday, Turkstat announced that 3 sectoral confidence indices chalked up another  monthly gain, while manufacturing and consumer confidence declined. Cheap credit is stimulating household consumption. Finally, the never-ending Trump impeachment theatre is delaying the debate on Turkey sanctions.  Despite the recent rally, Istanbul Stock Exchange BIST-100 Index is considered cheap vis-a-vis comparable EM on forward looking P/E basis, while the currency is defended vehemently by state banks.

 

The sometimes strained relationship between Ankara and Washington may be enjoying a period of calm, giving Istanbul stocks “a window of opportunity” to gain in 2020, said one of Turkey’s best-performing equity fund managers, who was interviewed by Bloomberg.

 

A steady stream of negative headlines testing the alliance has stopped since Iran-U.S. tensions threatened to escalate into conflict. It seems that the crisis has been good in reducing relative risks attached to Turkey’s market, said Haydar Acun, the managing partner at Marmara Capital in Istanbul.

 

 

“I do not expect things to get significantly worse from here as far as U.S.-Turkey relations are concerned for about nine months to a year, until the U.S. Presidential elections, and that’s likely to help Turkish equities’ risk premiums drop,” Acun said in an interview.

 

Acun’s Marmara Capital Asset Management Equity Fund returned 75% in 2019 compared with a gain of 25% for the benchmark BIST 100 Index. That performance was pipped only by Is Investment’s index-tracking technology stocks fund, according to the Turkey Electronic Fund Platform.

 

ETF Inflows

 

Investors poured $11.2 million into the two largest exchange-traded funds that focused on Turkish equities last week. The benchmark index was 0.8% lower Monday, joining a global sell-off as concerns about the deadly coronavirus outbreak increased risk aversion.

 

Acun expects improved economic growth and falling interest rates to also support local equities this year. “As long as there’s not another major geopolitical crisis, we don’t see an imminent threat that can weigh on Turkish markets.”

 

The rally in Turkish equities that has carried the benchmark index to record highs this year was largely driven by gains in shares in small and medium-cap companies that started in the second half of 2019. While these segments have been a favorite allocation for Acun, he is moving in 2020 into shares of larger-capitalized, core industrial companies that he said have been laggards. As a result, he has added Anadolu Efes, Coca Cola Icecek, Borusan and Petkim to the fund.

 

Here are some other opinions from the interview with Acun:

 

Sees banks rallying fast should there be a thorough plan to tackle non-performing loans. About 20% of his investments are in lenders. In this sector, he has positions in Akbank, Halkbank and Yapi Kredi. Acun said he may increase his position in Yapi Kredi as he sees Unicredit’s stake sale in the company as a positive in resolving problems related to management. Foreign investor perception of Turkey risks remains bad. But he doesn’t expect further outflows. “Those who didn’t want to take the risk left anyway.”

 

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