How to Invest in Turkey

by: World Market Pulse

For a number of years, Istanbul has been given the cold shoulder with respect to joining the elite European Union club and there were feelers that Turkey was believed to be too economically backward to qualify for membership.

A visit to Turkey today can clearly suggest that the old argument no longer holds as modern day Turkey is a fast-rising economic power, with a core of internationally competitive companies turning the youthful nation into an entrepreneurial hub, tapping cash-rich export markets in Russia and the Middle East while attracting billions of investment dollars in return. So complete has been Turkey's transformation that about 10 years ago, Turkey which had a budget deficit of 16% of gross domestic product and inflation of 72% is now fulfilling European Union’s fiscal guidelines of a 60% ceiling on government debt, at 49% of GDP, and could well get its annual budget deficit below the 3% benchmark next year.

The Republic of Turkey borders the Mediterranean Sea and its strategic location between Europe and the Middle East brings potential economic benefits. Turkey has a unique economy and a potentially attractive risk and return profile. Turkey, situated at the crossroads where two continents meet, is an ideal center for investors looking for a location at the heart of Euro-Asia. With its dynamic and growing economy, huge market, competitive and skilled labor force, Turkey offers numerous opportunities to international investors.

  • With a population of 73 million with an average age of just 27.7 years, Turkey has a very young population and an increasing consumer purchasing power; Turkey offers a huge and dynamic domestic market to investors. Moreover Turkey's economy has witnessed a growth of an average of nearly 6% between 2002 and 2008.
  • Unlike other emerging markets in Europe, Turkey survived the financial downturn without relying on an emergency bailout package from external lenders. The country now is expected to grow 3.5% to 4% this year.
  • Turkey is located at the gateway of the Middle East, Caspian petroleum and Central Asian natural gas to the west, which are regarded as the future energy reserves of the world.
  • In an encouraging sign, Standard & Poor's raised its long-term foreign currency and local currency sovereign credit ratings to BB and BB+, respectively in February this year.
  • IMF projections for the period 2008-2013 suggest that Turkey would maintain the title of the world’s 17th largest economy until 2013 with gross domestic product reaching $968.2 billion in 2013
  • The Istanbul Stock Exchange’s ISE-100 Index; hit all-time in-session record high at 60,410.11 points earlier this week. The record-breaking performance was attributed to the positive atmosphere in the global markets, positive expectations on European bank stress tests, the possibility of an increase in Turkey’s sovereign credit rating and most of all, foreign investor interest in the bourse.

Turkey Companies Traded On NYSE

1: Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC): Turkcell Iletisim Hizmetleri A.S. (Turkcell) is a provider of mobile services in Turkey. The Company provides mobile voice and data services over its mobile communications network. Turkcell is not only the leading operator in Turkey, but is also the third biggest GSM operator in Europe in terms of subscriber numbers. Turkcell’s shares have been traded on the Istanbul Stock Exchange (IMKB) and New York Stock Exchange (NYSE) since July 11, 2000 and it is the first and only Turkish company ever to be listed on NYSE.

Market Cap: 12.26B
P/E (ttm): 11.95
Avg Vol (3m): 726,650

2: Turkish Investment Fund Inc. (NYSE:TKF): The Turkish Investment Fund, Inc. is a close-ended equity mutual fund launched and managed by Morgan Stanley Investment Management Inc. The fund invests in the public equity markets of Turkey and benchmarks the performance of its portfolios against the MSCI Turkey Index.

Market Cap: 113.43M
P/E (ttm): 1.74
Avg Vol (3m): 38,625

ETFs Investing In Turkey

1: iShares MSCI Turkey Investable Market Index Fund (NYSEARCA:TUR) : One of the best ways for U.S. investors to make a play on Turkey is through the iShares MSCI Turkey Investable Market Index Fund. The fund tracks the MSCI Turkey Investable Market Index, which measures the performance of the Turkish equity market. TUR is heavily focused on financials, which make up 52% of total assets. Additionally, the fund makes large allocations towards the industrial materials (13.6%) and telecommunication (10.4%) sectors.

TUR Top Ten Holdings
1. Turkiye Garanti Bankasi (OTCQX:TKGBF): 14.50%
2. Akbank T.A.S. (OTCQX:AKBTY): 9.53%
3. Turkiye Is Bankasi C Share (OTC:TYIBF): 8.09%
4. Turkcell Iletisim Hizmetleri AS: 6.60%
5. Haci Omer Sabanci Holding A.S. (OTC:HOMJF): 4.07%
6. Anadolu Efes Brewery ve Malt Sanayi A.S. (OTCPK:AEBZY): 3.91%
7. Yapi Ve Kredi Bankasi (OTC:YVKAF): 3.90%
8. Turkiye Halk Bankasi A.S.: 3.83%
9. Bim Birlesik Magazalar A.S. (PINK:BMBSY): 3.81%
10. Tupras-Turkiye Petrol Rafineleri A.S.: 3.77%

TUR Sector Breakdown
Financials 53.15%
Industrial Materials 13.63%
Telecom 9.47%
Consumer Goods 7.13%
Consumer Services 4.58%
Energy 3.99%
Business Services 3.14%
Media 1.25%
Utilities 1.22%
Hardware 1.02%
Health Care 0.62%

Expense Ratio: 0.63%

TUR Performance
52 Week Return: 43.28%
YTD Return: 13.62%
1 Week Return: 4.61%
2 Week Return: 7.29%
4 Week Return: 10.64%
13 Week Return: -1.95%
26 Week Return: 8.43%

2: SPDR S&P Emerging Europe ETF (NYSEARCA:GUR): The S&P European Emerging BMI Capped Index is a market capitalization weighted index that defines and measures the investable universe of publicly traded companies domiciled in emerging European markets. The fund has 16.49% holdings in Turkey.

GUR Top Ten Holdings
1. Gazprom O A O 144A: 15.48%
2. Lukoil Company ADR: 6.95%
3. Ak Sberegatelny Bank Sberbank: 5.96%
4. Mobile TeleSystems ADR: 5.22%
5. Oao Novatek GDR: 4.53%
6. Rosneftegaz Ojsc 144A: 3.92%
7. MMC Norilsk Nickel ADR: 3.87%
8. Surgutneftegaz OAO: 3.36%
9. Turkiye Garanti Bankasi: 3.17%
10. Cez A.S., Praha: 2.72%

GUR Country Breakdown
Russia 63.33%
Turkey 16.49%
Poland 9.91%
Hungary 4.43%
Czech Republic 4.37%
Luxembourg 1.09%
Other 0.38%
Avg Vol (3m): 108,867
YTD Return (Mkt): 78.98%
P/E (ttm): 10
Expense Ratio: 0.59%

3: iShares MSCI Turkey Fund: Listed on the British London Stock Exchange, iShares MSCI Turkey is an exchange traded fund (ETF) that aims to track the performance of the MSCI Turkey Index. The ETF invests in physical index securities. The MSCI Turkey Index offers exposure to Turkish stocks which comply with MSCI's size, liquidity, and free float criteria. The index is free float market capitalisation weighted.

Top Ten Holdings
2 AKBANK T.A.S. ORD TRY1.0 11.72

Sector Allocation 01/07/10
1 Financials 60.19
2 Telecommunication Services 11.39
3 Consumer Staples 10.81
4 Industrials 9.33
5 Energy 4.74
6 Materials 2.09
7 Consumer Discretionary 1.45

Expense Ratio 0.74

The Istanbul Stock Exchange

The Istanbul Stock Exchange was established on December 26, 1985 for the purpose of ensuring that securities are traded in a secure and stable environment, and commenced to operate on January 3, 1986. The ISE has contributed to the development of Turkish capital markets and Turkish economy since the date of its establishment.

Established as per the Governmental Decree in Force of Law (KHK) No.91, the ISE is a public corporation operating as an autonomous and professional institution. The ISE is entitled to issue legal regulations related to the subjects and fields within the scope of its authority.

The General Assembly comprising of the ISE Members is the supreme decision making body. The Executive Council of the ISE comprises of the Chairman and four members. While the Chairman is appointed as per a tripartite decree, the General Assembly of ISE elects members of the Executive Council and auditors.

The Istanbul Stock Exchange, or ISE, is the 11th exchange to provide the most gains to its investors during the first half of the year. The ISE-100 posted a 3.81 percent increase during the period. As of June this year, the ISE National 100 index, which was at 52.825 points at the end of last year, reached 54.839, showed a 3.81 percent increase.

Largest Companies Of Turkey Listed In Istanbul Stock Exchange

  • Food: Danonesa
  • Automobiles: Orhan
  • Banking: AkBank, Demirbank, Denizbank, Disbank, Etibank, Finansbank, Garanti Bank, Halk Bank, Iktisat Bankasi TAS, Oyak Bank, Tekstil Bankasi AS, Turk Ekonomi Bankasi (TEB), Turkish Bank Ltd.
    Construction: Cimentas
  • Retail: Migros Turk TAS, Ramstore
  • Electronics: BRK Elektronik LTD, Vestelkom
  • Energy & water: Bedas, Botas, Delta Petroleum, Doga Enerji, Dogas, Izmit Su, Marmara Power, Petrol Ofisi, Seyitomer, Trakya, Tupras-Türkiye Petrol Rafinerileri
  • Equipment: Ecsacibasi, Ratio-Norm Ltd., TEMDA Tek. ÜRÜN San. Ltd., Wagner Kablo TIC.A.S
  • Media: Dogan Group, Superonline, Uzan Group
  • Metals & mining: Erdemir
  • Health care: Kaedelen Mediko Tekstil
  • Telecommunications services: Asia Cell, Telsim, Turk Telekom, Turkcell Iletisim Hizmetleri
  • Transportation services: TAV Havalimanlari Holding AS, Turkish Airlines
  • Apparel: Inteks International Textile Industry and Export
  • Top Private Investors: Ciner, Turgay, Dogan (family), Karamehmet, Mehmet (family), Koc, Rahmi, Sabanci, Sakip, Sahenk, Ayhan, Uzan, Kemal (family)
  • State: Public institution; Holding: Park Group, Sabanci Holding, SSDF, TSKGV
  • Conglomerate: Dogus Insaat, Koc Holding, Oyak Holding, Profilo Holding, Tefken AS, Yildiz

Turkish Companies In Forbes List

Thirteen Turkish companies placed among the 2,000 biggest companies in the world in Forbes Magazine’s list. Forbes Magazine listed the 2,000 largest companies from 62 countries according to their income, profit, assets and market values.

- 331st Is Bankasi (5.31 bln USD)
- 410th Koc Group (2.51 bln USD)
- 427th Akbank (6.91 bln USD)
- 452nd Garanti Bankasi (5.11 bln USD)
- 527th Sabanci Group (2.60 bln USD)
- 714th Turkcell (10.93 bln USD)
- 741st Turk Telekom (8.02 bln USD)
- 779th Halk Bankasi (2.63 bln USD)
- 850th Vakiflar Bankasi (1.59 bln USD)
- 942nd Enka (4.37 bln USD)
- 1262nd Erdemir (2.24 bln USD)
- 1340th Dogan Holding (0.73 bln USD)
- 1879th Anadolu Efes (2.86 bln USD)

The World Market Pulse team is engaged in deep research, monitoring and evaluation of world markets on a constant basis with special emphasis on emerging markets. Apart from Turkey ETFs and Istanbul Stock Exchange our team also tracks and evaluates various Turkey indices including the Dow Jones Islamic Market Turkey Index and Dow Jones Turkey Titans 20 Index (which is based on the top 20 companies of the Istanbul Stock Exchange) to get a better insight into understanding, evaluate and monitor the market dynamics of Turkey.

Turkey And EU Inclusion Talks

A persistent candidate for entry into the European Union (NYSEARCA:EU), negotiations between Turkey and the EU keep stalling because of Turkey's lack of economic reform programs. If Turkey continues to grow and develop, it will become more linked to the fortunes of Europe, and in turn Europe will become more linked to Turkey. Turkey is already a NATO member, an OECD member, and a member of the Council of Europe, all three of which are mostly comprised of European countries, so inclusion in the EU isn’t at all far-fetched.

Overview Of The Turkish Economy

The Turkish economy has shown remarkable performance with its steady growth over the last six years. A sound macroeconomic strategy in combination with prudent fiscal policies and major structural reforms in effect since 2002, has integrated the Turkish economy into the globalized world, while transforming the country into one of the major recipients of FDI in its region. Turkey is a rapidly developing country and the largest national economy in Central and Eastern Europe. Turkey's dynamic economy is a complex mix of modern industry and commerce along with a traditional agriculture sector that still accounts for about 30% of employment. It has a strong and rapidly growing private sector, yet the state remains a major participant in basic industry, banking, transport, and communication. Turkey's gross domestic product expanded 11.7% in the first quarter compared to the same period last year . The figures indicate a strong recovery from a profound recession, which hit the wider global economy. The performance was also better than the 11.5% growth most economists expected. The Turkish economy experienced seven years of continuous growth between 2002 and 2008.

The visible improvements in the Turkish economy have also boosted foreign trade, while exports reached USD 102 billion by the end of 2009, up from USD 36 billion in 2002. Similarly, tourism revenues, which were around USD 8.5 billion in 2002, exceeded USD 21 billion in 2009.

For an emerging market, Turkey has a robust transportation network, including the 13th largest road network in the world and the 19th largest rail network. The Turks have even begun to build a high-speed rail system between their two major cities that travels over 150/mph, and currently have the most investment in transport with private participation at over $3 billion.

Prior to the recent global recession that hit all economies throughout the world, the Turkish economy sustained strong economic growth for 27 quarters consecutively, making it one of the fastest growing economies in Europe. However, the global financial crisis has considerably challenged the macroeconomic and financial stability of many economies by adversely affecting financing facilities and external demand, thus causing a significant slowdown in all global economic activities.

Turkey Economy Negatives

Although the Turkish economy is showing many signs that it has left the 2009 economic crisis in the dust, it will not be a carefree period for Turkey, as it falls into the same problems that it has always had with its balance of payments. In the span of the first two months of the year, the current account deficit grew by nearly 600 percent compared to the same period last year. In February alone, the deficit grew by 744 percent to reach $2.6 billion.

Economic trouble in nearby Greece has begun to act as a major drag on the Turkish economy. With widespread discontent in Greece, which is often considered a jumping off point for Turkish immigrants looking for better opportunities in Europe, more Turkish workers will likely be forced to stay home, further increasing the possibility of social unrest and a rising unemployment rate.

Outlook 2010 And Beyond

According to a recent the International Monetary Fund report, Turkey is rebounding from the global financial crisis faster than many peers in eastern Europe because domestic confidence “has already recovered from the initial external shock” and capital flows and trade are returning to normal.

The Organization for Economic Cooperation and Development (OECD) has said that the Turkish economy had rebounded sharply since the second quarter of 2009 thanks to good export performance and GDP was projected to expand by 6.8% in 2010 and 4.5% in 2011. Paris-based OECD in its latest release of the Economic Outlook Report also added that job creation in Turkey would not be strong enough to absorb the rapidly growing labour force and unemployment could rise further. The report said, "macroeconomic policy framework has been solid. Turkey's risk premia, which had rapidly normalised after the global financial crisis, decreased further since fall 2009 and all rating agencies upgraded the sovereign credit rating."

According to investment bank Morgan Stanley, Turkish labor productivity has risen by 42.5%. Business investment spending has soared by 120%. Corporate profitability has leapt ahead. Even more remarkable is that Turkey's record growth has been achieved against the head wind of tight monetary policy, with real interest rates substantially higher than in other OECD countries. The reasons for tight monetary policy are well-founded. Turkey's inflation rate still hovers at around 10%, and falls short of the IMF-agreed target of 4%.

Despite all political problems, domestic and international, most of Turkey’s macroeconomic figures are encouraging. Turkey has a dynamic economy and is positioned to be an important part of the European Union sooner rather than later.

Disclosure: No positions