Strong showing

Turkish equities (TUR) have done quite well in YTD 2017 until March 17. The MSCI Turkey Index is up 13.3% for the year which places it as the second best emerging market country index in Europe behind Poland. It has returned more than all emerging market country indices from Latin America and all globally except Korea, India, and the China 50 indices from Asia.

The fact that Turkish equities had a poor start to 2017 – they were down 11.1% until January 11 – makes the subsequent rise even more prominent.

Why have Turkish equities done well?

Turkey has seen rising inflation levels for the past three consecutive months and its political scene is not the best – both domestically and internationally. In February, the country posted a budget deficit of 6.8 billion liras ($1.8 billion) – the biggest gap for the month in eight years; a year ago this figure was in a surplus.

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Meanwhile, according to a recently released labor report, youth joblessness in the country had rocketed to 24% in December – the most since April 2009 while general unemployment rose to 12.7% – the most since March 2010.

Though macroeconomic data does not direct market movement, it can certainly influence investors. However, in Turkey’s case investors continue to invest in the country’s stocks.

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One reason why investors continue to be attracted to Turkish equities is because among emerging markets from Europe, there is little to choose from except Poland, and to a certain extent, Hungary. Further, Turkish equities remain cheap. The P/E ratio of the TUR ETF was 10.17 as of March 17.

Can the bull run continue?

Investors will continue to find Turkish equities attractive as long as they remain inexpensive. However, it’ll be important to keep an eye out for macroeconomic indicators as continued pressure from them will be reflected in the nation’s economic growth. This will make growth prospects for local companies challenging, and will be reflected in investors turning away from the country’s stocks.

An important event to watch will be the referendum that has been called by the government to make constitutional changes. The event – scheduled for April 16 – has the potential to impact investor sentiment.

The Turkish lira will play a pivotal role here too as it can work as the indicator for how investors are feeling about the country.

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