Turkey is one of the best developing nations to invest in, and the iShares MSCI Turkey ETF (NYSEARCA:TUR) allows investors to gain exposure to this emerging market. The iShares Turkey ETF is composed of large-,mid-, and small cap Turkish stocks, and it is up 26% from this time last year. The country has become a regional power lately, and the country is located strategically at the crossroads of the world. Turkey is a unique position, because its future is tied to Europe as well as the Middle East. Orhan Pamuk said the following about the country, "I see Turkey's future as being in Europe, as one of many prosperous, tolerant, democratic countries."
Source: chart from Yahoo! Finance
The ETF contains a diversified portfolio of numerous Turkish stocks. The financial sector is the bulk of the ETF's holdings, as shown in the sector breakdown below. The top holding is Granati Bank, which is the second largest private bank in Turkey. Granati Bank is a well-run company, and it was selected as the best bank in Turkey for the 11th time in 2011. The banking sector has performed well over the past year, and the banking sector was up 11% in the first six months of 2012. Consumer staples also compromise a significant portion of the holdings. Consumer staples have the potential to perform well in Turkey, because 59% of the country is now considered to be middle class. The ETF is liquid, and the 3 month average volume is 345,526. The expense ratio is .60% as of December 2012.
source: chart from iShares website
Turkey is currently is defined as being an emerging market by the IMF. Turkey's status as an emerging market offers the potential for growth as well as risks. However, Turkey isn't that risky, because of political stability that the country has seen in recent years. The country avoided the worst parts of the Arab Spring because of its democracy and secular government. The Turkish economy has performed well over the past few years. The average annual real GDP growth has far outpaced other countries like Russia and Mexico, as shown in the graph below. Moody's will likely upgrade the country by the end of this year.
Many investment funds are turning torwards Turkey to avoid Europe's worsening debt crisis. Turkey's future is heavily tied to Europe. Turkey even began full membership negotiations with the European Union in 2005. Istanbul is also currently bidding to be the host of the 2020 Summer Olympic Games. Despite previous failed attempts, Yalcin Aksoy believes that the country is in a good position to win, because of the country's economy. The winner will be announced this September, and the ETF will likely benefit if Turkey is announced as the winner. As shown in the graph below, Turkey is forecasted to be the fastest growing country of the OECD members during the 2011-2017 period.
Source: charts from Invest in Turkey
The biggest thing that could hold this ETF back in 2013 is the Syrian Civil War. Syrian refugees in Turkey are taking a toll on the country. Turkish Prime Minister Recep Tayyip Erdogan announced on February 9 that Turkey has already spent $600 million on Syrian refugees who are currently residing in Turkey. Despite the high costs, Turkey will continue to aid the refugees. Turkish opposition to the Bashar Al-Assad regime could lead to lead to a spillover of the violence into Turkey. In December, Syrian warplanes bombed the border town of Ras al-Ain. In January, President Bashar Al-Assad said that he will not negotiate with the rebels or step down. The recession in the eurozone could also potentially hold Turkey back. Europe is Turkey's leading export market, and it accounts for 32% of Turkey's exports. The Turkish lira was down 15% in 2011 as a result of the eurozone crisis. Turkey also has a very strong dependence on foreign capital. Turkey's full membership in the E.U. is at risk because of the country's poor relations with Cyprus.
Turkey has enormous growth potential. It will be one of the fastest growing countries in the world over the next five years. Despite a civil war in nearby Syria, the country is politically stable. Full membership for Turkey in the European Union is still a possibility. The country is an industrial powerhouse that exports its goods across Europe. Turkey's unique situation makes it a fantastic investment opportunity for investors who want to invest in emerging markets.
Source: data from iShares website