Turkey remains one of the fastest growing economies of Europe
despite the recent declines in their growth rate. In 2012, the
growth rate dropped to nearly 3% from 8.5% reported in 2011, one of
the steepest falls seen of late.
However, the country remains somewhat optimistic about its 2013
economic growth rate. The country expects to improve its economic
growth to 4% in 2013 and anticipates inflation to fall with various
infrastructure projects and logistics investment in the line-up
(Time To Gobble Up The Turkey ETF (TUR)).
Obviously, this growth rate, while reduced from historical
levels, is far better than what many investors see in other markets
in the region. This suggests that Turkey could be a better play for
those seeking a broad Europe play at this time that still has
growth prospects in its future.
After all, other factors are also positive on the country,
specifically in terms of debt.
Last year, Fitch upgraded its credit rating on Turkey to
investment grade. The long-term foreign currency Issuer
Default Rating (IDR) was upgraded to BBB- (from BB+) and the
long-term local currency IDR was upgraded to BBB (from BB+) after
an 18-year wait (3 Emerging Market ETFs Protected from Global
Events).
This is a step towards becoming a developed economy from an
emerging market economy, a move which will boost the confidence of
both investors and consumers and also attract more capital to
Turkey from overseas.
However, an increase in the current account deficit remains a
matter of concern for the economy as it is expected to increase to
7% of GDP from 6.8% reported in 2012 despite improved external and
internal balances (Time to Stuff the Turkey ETF into Your
Portfolio?).
Turkey reported a fall in imports by 2.5% in 2012 while exports
increased by 12%. The rise in exports is mainly due to export of
gold. Excluding this precious metal, the economy reported a growth
of just 2.5% in exports.
Successful market diversification and the depreciation in real
effective exchange rate also added to export growth. The strong
demand for export came from global and European markets and the
country is expected to continue to benefit from global trade going
forward.
However, the Turkish economy is highly dependent on foreign
capital flows (in the form of direct investments) for economic
growth. Going forward, the economy could face challenges if it
fails to attract enough foreign inflows due to strict
regulation.
A key to attracting foreign direct investment in the economy
could be structural reforms which include better business
regulations, adoption of employment strategy and execution of
capital market law.
This will result in more investment from overseas leading to
improved productivity and competitiveness of the country (A Trio of
Top Emerging Market ETFs for 2013).
Turkey wishes to become one of the top ten global economies by
2023 for which it is required to grow at the rate of 6% in the
medium to long term. By 2023, Turkey targets gross domestic product
of $2 trillion, an increase from $775 billion in 2012.
Attributable to its strong resiliency to global turmoil and
better-than-expected performance, Turkey stocks number among the
best performing investment opportunities available for investors.
And the best way to access these stocks is investing in a basket of
securities, such as in a Turkey ETF, rather than in individual
securities.
The iShares MSCI Turkey Investable Market ETF
(TUR) was launched in
March 2008. TUR is the only option available to investors seeking a
pure play exposure in the Turkish equity space.
TUR has asset under management of $830 million and trades at
volume levels of more than 300,000 million shares a day. This asset
base is spread out among 90 Turkish securities.
The Turkey ETF portfolio consists mostly of the largest
Turkish-listed stocks with a very small allocation made to small
and mid cap securities.
While some might think that the dominance of large caps in the
fund entails that TUR derives a big portion of sales from foreign
markets, this isn’t really the case. Furthermore, TUR’s R-Squared
value of just 42.9% with the S&P 50 indicates the fact that it
is not very strongly correlated with the U.S. equity market
performance and offers international diversification.
The Turkey ETF is heavily invested in the top ten holdings as
63.3% of the asset base go towards the top ten large caps. Most of
these go to financial giants Turkiye Garanti Bankasi (13%) and AK
Bank T.AS. (10.18%).
In fact the fund has more than half of its asset base
invested in the financial sector (52.3%). Although financials has
been a laggard for most of Europe—especially in nations like
Greece (GREK) or central Europe
(EWO)-- the Turkish banking system appears to be
quite strong as it has been one of the best performing sectors of
the region (For Financials, Look to These Top Zacks Ranked
ETFs).
Other than financials, industrials and consumer staples also get
double-digit allocation in the fund with a share of 12.1% and
11.4%, respectively. Other sectors include telecommunication,
materials, consumer discretionary, energy, health care, utilities
and information
technology.
TUR has been an incredible performer in 2012. It was one of the
top performing emerging market ETFs. The fund gained a whopping
63.2% in the last fiscal year. The ETF started 2013 on a very
strong note thereby continuing to show strength and delivering a
return of 1% in the year-to-date period (Five Best Performing ETFs
(So Far) in 2012).
As caveat, we note that the fund cannot be kept as a core
holding in a portfolio as Turkey’s economic strength is rated as
moderate to high by Moody’s. But the inclusion will likely improve
the emerging market exposure of an investor, and certainly help to
diversify U.S.-centric portfolios in the process.
This could make the Turkey ETF another great play in 2013,
especially if it is able to maintain its strong Zacks ETF Rank of 2
or ‘Buy’ heading into the spring and summer months.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30
Days. Click to get this free report >>
ISHARS-AUSTRIA (EWO): ETF Research Reports
GLBL-X/F GREC20 (GREK): ETF Research Reports
ISHRS-MSCI TURK (TUR): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days. Click
to get this free report
iShares MSCI Austria ETF (AMEX:EWO)
Historical Stock Chart
From Jul 2024 to Aug 2024
iShares MSCI Austria ETF (AMEX:EWO)
Historical Stock Chart
From Aug 2023 to Aug 2024