TUR: Currency Risk Too High After Syria Invasion

Summary

• My previous bullish positions on TUR have been hit by ongoing currency devaluations in the country.
• While its equities are incredibly cheap, poor monetary policy and geopolitical decision making can make a good foreign investment into an awful one via currency risk.
• Now that the country has lowered its interest rate by 10% (per Erdogan's demand), another inflationary spike could be around the corner.
• To make matters worse, Erdogan decided to invade Syria which could easily cause the Lira to completely collapse if Western countries push new sanctions.

(Source - Pexels)

There comes a time when investment analysts are best admitting that their past ideas are unlikely to pan out as expected. In the face of bad performance, many analysts simply reiterate their past position and cross their fingers that the tide stops turning against them.

For me, the iShares Turkey (NASDAQ:TUR) ETF continues to bite me when I least expect. Last July, I wrote a bullish piece on the country's ETF that extolled the extremely cheap valuations of its stocks and their great long-run growth potential. A month and a half later, Trump threatened tariffs on the country and the Lira crashed, causing TUR to fall 30%.

This August I made another attempt. Valuations are even lower and it looked that Erdogan may have finally got his act together to stop destroying his country's currency.

However, once again, two months later, he proved me wrong and decided to upset the entire Western world by attacking the Kurdish people (who are U.S. allies) in Syria. Thus far, this has resulted in a 10% loss on TUR and likely more on the way.

Due to extreme currency risk, I am now short TUR and have changed my mind on the country.

The country's equity market is still at an extreme firesale, the fund has a weighted average "P/E" of 6.8X and a dividend yield of 4.5%. Even more, many of the companies in the fund have high growth rates. That said, a bad leader with too much monetary control can make a good foreign investment into an awful one.

It's All in the Lira

On Wednesday, a user commented on my last TUR article asking "Can someone explain why TUR is down since 2008 whilst Istanbul 100 is up since the same time?". This very important question is the key to my

Analyst’s Disclosure:I am/we are short TUR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.