Investments Exiting Turkey - Time to Short Turkish ETFs

 |  Includes: TKF, TUR
by: Kerem Uluengin

The Turkish ISE National-100 Index seems like it has slowly started to fade from the limelight when compared to fellow capital markets. A glance at the charts indicates to us that the spike in the Turkish capital markets following the referendum of September 12th has slowly started to have a major setback.

The recent rate hikes of the central bank has repelled foreign investors from the Turkish financial instruments, an enactment in accordance with the country’s new fiscal program devised to dissuade speculative hot money flows to the market, and to prevent it from further widening the already colossal account deficit standing at 6.6%.

The chart below displays the performance of the Istanbul Stock Exchange National-100 index (XU100) priced in US dollars, euro, gold, the S&P500, Dow Industrial Average, and the German DAX. Note that the XU100 is falling against all the aforementioned major currencies and markets with no exception.

Click to enlarge

click to enlarge

A quick glance at last week’s capital market performances reveals that even the most troubled countries like Greece and Ireland have been outperforming Turkey.

Click to enlarge

The ISE National-100 has even lagged in performance against major markets over the past month.

Click to enlarge

Technically, the 68,500 level is quite an important support and resistance level for the ISE National-100. Traders become more bullish when the resistance is broken in an upward tend, and bearish when the support is lost. The previous month’s sales have triggered a downward move and the key support has been broken.

Click to enlarge

So it is clear that investments are exiting the Turkish markets. But where are they headed?

The Russian Trade Exchange ((RTSI)) is most likely the address for the speculative hot money flows. The divergence between the Turkish and Russian markets is widening more and more since December. The RTSI is likely to display a performance in the upcoming weeks similar to the ascent XU100 showed in the summer of 2010.

Click to enlarge

The RTSI graphs priced in US dollars, euro, gold, the S&P500, Dow Industrial Average, and the German DAX all show a healthy upward trend.

Click to enlarge
As predicted, the ISE National-100 is experiencing a hard decline, mainly because of:

1. The rising inflation expectations in the global markets,

2. The interest rate cuts of the central bank in order to dissuade the liquidity deriving from the quantitative easing undertook by the developed economies, i.e. the so-called speculative hot money, from pouring into the country’s economy and to weaken the lira.

Turkey imports 93% of its oil and political unrest from Libya is increasing the cost of energy and diminishing demand from a region that buys about 30% of Turkey’s exports. The country’s January trade gap was 7.4 billion dollars, in contrast to the expected amount of 4.5 billion.

The ISE National-100 is most likely to continue its meager performance until the general elections which will be held on June 12 this year.

Shorting TUR or TKF is a good position to take at this point, as the course of the Turkish capital markets clearly appear to be on a downward slope under the given circumstances.

Disclosure: I am short TUR.