The Turkish stock market has continued to perform well, and is already up 10.1 percent since the beginning of the year. That performance is just a continuation of a trend that has seen the market rise since the beginning of 2012. But for how long can it continue to perform?
“Looking at the big picture, we still think that there is a lot more to do in the Turkish economy,” said Emre Akcakmak, portfolio manager at East Capital.
“Despite recent positive macroeconomic developments, income per capita is still way below the one of EU-member countries and further reforms may help unleash the country’s economic growth potential. All time low interest rates, healthy public balances as well as the recent credit rating upgrades and increased financial market stability should also support further economic development. All in all, we are hopeful that Turkey’s long term convergence story would be reflected on the equity market along the way.”
Turkey’s demographics give the country a distinct advantage over many of its peers.
“Turkey will continue to enjoy its favorable demographics for the next 10-15 years. The population is young, with an average age of 29, compared to just over 40 in the EU,” Akcakmak explained. “That means Turkey has a large and dynamic domestic market with potential to continue increasing economic output in the coming years. What is also encouraging is that this young labor force is increasingly educated and competitive.”
The main driver of the Turkish economy is domestic demand.
“That means the Turkish market is reactive to consumer sentiment, which in turn is largely dependent on political and economic stability. The market also responds to developments in global financial markets due to large foreign participation in Turkish financial markets and, of course, due to Turkey’s trade ties.”
Which sectors have you identified as likely to be the most interesting in the coming years?
“We are particularly interested in sectors which give us the best exposure to the growth in the domestic market. Specifically, we like the banking sector that manages to grow its loan book by about 15-20% a year. Loan growth is driven not only by private consumption but also by large infrastructure projects. Auto and real estate sectors are also interesting as historically low interest rates boost consumer demand. In addition, companies that operate in Turkey’s rapidly growing aviation and pension fund sectors are also interesting.”
Since the end of 2011, the Turkish market went up by 77 per cent. What are the reasons for the strong performances of the market and the fund?
“2012 was a year that the Turkish stock market recovered strongly, so much so that it was re-rated on the back of ongoing positive developments in the economy. The key areas of concern – inflation and current account deficit – declined notably as growth slowed down in an orderly manner. As a reflection of the better macroeconomic environment, interest rates declined, risk perception has improved and the country was eventually upgraded to an investment grade by Fitch. On top of already attractive valuation levels, Turkish companies surprised investors by delivering better than expected profits. Banks, in particular, performed much better than others as they managed to grow their earnings significantly, thanks mainly to declining deposit costs,” Akcakmak said.
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