Turkey has few friends on Wall Street and it’s easy to understand why. Investors are worried whether the country’s red-hot economy will overheat. Neighboring Syria is engulfed in political turmoil and Turkey’s unemployment rate remains high, especially among young people. A few pundits, though, have recently said that these concerns over Turkey are overblown. That means the time may be right for people to invest in the the region via the iShares Turkey ETF(NYSE:TUR) or other funds and stocks that have influence over Turkey.
In fact, Dr. Osman Gulseven, an economist at Ankara’s Middle East Technical University, recently argued in Seeking Alpha that investors should expect a “huge” run-up in Turkish ETF funds and Turkey stock prices and that the widespread view among Wall Street analysts and the media that the county is teetering on the verge of an economic meltdown is mistaken. Though it has its share of problems, including rising inflation, there seems to be no danger of Turkey turning into another totalitarian state in the Middle East.
“Let’s look at the fundamentals. For the last decade, Turkey has shown miraculous growth,” he writes. “Business in Turkey is booming from all perspectives.”
U.S. companies exported $10.5 billion worth of goods to Turkey in 2010, up from $7.09 billion a year earlier, according to government statistics. Even so, Turkey isn’t getting much love from investors. Shares of the iShares MSCI Turkey Investable Market Index Fund (NYSE:TUR), the dominant Turkey ETF fund in the sector, are down 11.6% this year. Turkiye Garanti Bankasi (PINK:TKCBY), the Turkey ETF funds biggest holding, has plummeted more than 10% as its profits fell because of higher reserve requirements. Other big Turkish companies such as Turkcell Iletisim Hizmetleri (NYSE:TKC), Turkey’s biggest mobile-phone company, are suffering as well. Turkcell, however, peeved investors when it reported a loss in its Belarus unit. Its 23% decline also is dragging down the ETF fund.
Bulls like Gulseven argue is that there is tremendous potential in Turkey. Ford Motor Co. (NYSE:F), for one, is benefiting from the rising sales of its Turkish affiliate, Ford Otosan, which has more than 40% of the auto market. The business began exporting cars to the U.S. in 2000. In April, the automaker and its Turkish joint venture partner Koç Holding, announced plans to invest $290 million in a plant in northwestern Turkey.
Growth may cool down further this year because of the tenuous nature of the worldwide economy and inflation, which the government expects to hit 6.9% this year, up from a previously forecast 5.9%.Turkey’s economy rebounded in 2010, posting a projected real GDP growth rate of about 8.2%, versus a contraction of 4.7% in 2009, according to the CIA World Factbook.
Last year, General Electric Co. (NYSE:GE) unloaded its 18.6% stake in Turkiye Garanti Bankasi (PINK:TKCBY) for $3.776 billion to Spain’s Banco Bilbao Vizcaya Argentaria (NYSE:BBVA). The conglomerate retained a 2.25% stake in Garanti, Turkey’s second-largest bank with $78 billion in assets. The blog Insider Monkey raised the alarm bells, pointing out that the sale price for the stake was at a $1 billion discount, which fueled suspicions about the financial stability of GE and Turkey. What many skeptics failed to realize, however, was that GE netted a handsome return of 200% in five years, making it one of the company’s best investments ever, according to Guisseven. GE Turkey has 500 people direct employees while 18,000 people are employed through join ventures and partnerships.
Erdem Basci, the head of the Turkish central bank, said a few months ago that the government’s controversial “hot money” policy was successful in easing lending and decreasing speculation. Many investors, though, argue that the central bank should have raised interest rates long ago.
Investing in Turkey is not for the faint-hearted. But if someone can stomach the uncertainty, the rewards outweigh the risks.
