It’s been just under two months since the unsuccessful coup was launched against President Erdogan’s government in Turkey, so let’s revisit the country from an investor’s perspective and see if there are any signs of stabilization. One thing is for sure, and that is Erdogan has used the failed attempt to further consolidate power by eradicating all institutions, both public and private, of his opponents. So basically he is just another totalitarian dictator, not unlike Putin who was also “democratically elected.”
From an investor’s point of view, political stabilization counts for more than political chaos in a democratic country—it’s just one more risk eliminated. With that in mind, let’s see how equity markets, the Istanbul Borsa and in particular the benchmark index XU100, are performing YTD. The index, as one would expect, plummeted in the aftermath of the coup, dropping about 13% in one week, but from that low on July 22 it has risen 8.5% which closely matches the YTD performance. In my opinion this is not a good time to enter the market; I prefer to wait a couple of months to see what other shoes may drop.
Terrorism is a big factor, with both ISIS and the PKK targeting the country. In a recent interview on Turkish TV, Prime Minister Benali Yildirim stated that terrorism has caused about $10 billion of damage to the economy, which could be a huge opportunity to invest in infrastructure sector stocks, as long as stability can be maintained.
There is another sector that I believe will do well for the economy and investors alike, and that is the petroleum refining and transportation sector. At a recent finance summit in Istanbul, the former chief of Shell Oil “predicted that the hydrocarbon resources would be the most significant sector in Turkey within short term,” according to an article from yenisafak.com.
If this proves true, I would look at companies like Tupras Turkiye Petrol Rafineriler (TUPRS) and Ipek Dogal Enerji Kaynaklari Arastirma Ve Uretim (IPEKE) that could be big winners in the long term. Of course for those who prefer funds, there is the Turkey focused ETF (TUR)
Another positive piece of news is the central bank cut the reserve ratio by 50 basis points on September 6 in order to add liquidity to the markets. It’s still too early to gauge the effect that this had, but I think it’s good news. My advice to foreign investors is to tread lightly and wait for the volatility, both economically and politically, to drop substantially before entering that market. Hopefully that will be soon.
Peter Kohli is the CEO of emerging market specialist DMS Funds.
