Turkey Fund Jumps Ahead of Weekend Election

The Turkish Investment Fund (TKF) jumped 7% Thursday just ahead of a key election this weekend. Turkey’s general election on July 22nd is important for Turkey’s image in the investment world and will go a long way in determining whether its market reforms and momentum march on as iShares plans the launch of its new Turkey exchange-traded fund.

Expectations are that the pro-business AKP will be returned to power but in a somewhat weakened position. The opposition Republican People’s Party could pull an upset which would slow down Turkey’s vigorous privatization program and encouragement of foreign investment.

Turkey is also attracting robust flows of foreign direct investment. It currently represents 4.5% of GDP and has gone from less than 1 billion in 2003 to $18 billion in 2006 with the financial sector attracting the bulk of this capital. Part of this is due to a better economy and more fiscal discipline. Inflation was as high as 69% as recent as 2001 and is now down below 10% with average GDP growth of 8% over the past three years. Auto exports from Turkey to Europe are rising rapidly as both Toyota and Ford have expanded plants.

While waiting for the Turkey iShare to come to market, your best vehicle may be the closed-end Turkish Investment Fund (TKF) managed by Morgan Stanley. Its top holdings are Turkiye Garanti Bank at 10% of assets, Aksigorta at 8.5% and Bim Birlesik and Coca-Cola Icecek at 6.5%, respectively. This closed-ended fund has gone from trading at a 20% premium last December to a recent 4% discount to its net asset value. Because of this, its performance has been a bit odd this year. While its net asset value is up 29% so far this year, its share price has lagged behind by a substantial margin though today's jump will close the gap.