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Making Investment Grade Is Only The Beginning For Turkey

It's been a few months since I was in Istanbul and wrote about Turkey's exciting cultural and economic transformation, and the country is still making headlines. The Emerging Europe Fund's (MUTF:EUROX) portfolio manager, Tim Steinle, has been very bullish on Turkey for multiple reasons, including its young growing demographic, its fiscal and monetary policies geared toward growth, and its entrepreneurial mindset and pro-business policies, to name just a few.

Most recently, Moody's Investors Service validates our opinion of Turkey as the rating agency upgraded the country's credit rating from Baa3 to Ba1 with a stable outlook.

The move brings about the long-awaited second investment grade rating, following Fitch's upgrade in November 2012. The agency highlighted the recent and expected improvements in finance metrics, as well as noticeable progress on structural and institutional reforms.

In addition, Turkey's central bank cut rates by 50 basis points, exceeding analyst expectations as it seeks to contain currency appreciation. The lira has been strengthening as capital inflows seeking to benefit from the country's promising economic growth remain strong.

Local stocks historically received a boost in the months following an upgrade. The table below shows HSBC Global Research's chart of the performance of the Philippines' equity market following its credit upgrades. One month after the rating upgrade, stocks rose an average of 2 percent. In the three months after its upgrade, stocks climbed 10.3 percent, on average.

The Philippines Market After Rating Increase

Turkey stands among the strongest countries to benefit from current global easing. Internally, inflation is well under control, and domestic consumption is unabated. Furthermore, the country's stock market continues to trade on a cheaper price to earnings valuation when compared to countries like Mexico, Malaysia, and Thailand, says HSBC. Hence, there is ample reason to believe the Turkish equity market should continue to outperform.

Samuel Pelaez, analyst at U.S. Global Investors, contributed to this commentary.

Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund's returns and share price may be more volatile than those of a less concentrated portfolio.

The Emerging Europe Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund's performance more volatile.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.