LONDON May 9 In a neighbourhood mired in
recession or political turmoil, Turkey is hosting the region's
development bank as a dynamic economic leader rather than a
Record investment in its stocks and bonds is making its
financial centre Istanbul, the venue for the annual meeting of
the European Bank for Reconstruction and Development, look more
akin to Wall Street than Warsaw.
Robust growth and company profits have powered dollar-based
equity returns of around 18 percent, akin to the S&P500
in New York, while broader emerging stocks are barely in the
black. Turkish bonds have returned around 7 percent.
While recession or stagnation grips eastern Europe, UBS
strategist Manik Narain notes that predictions of 4 percent
Turkish growth this year aren't far off what India expects.
Economic growth and falling inflation are translating into
jobs, tax revenues and corporate profits. More than half the big
and mid-cap companies that have reported first quarter earnings
have beaten estimates, according to Thomson Reuters Starmine.
The fall in global oil prices may help the energy importer
win higher credit ratings and lower interest rates.
"Turkey is a far more wholesome story these days than many
other emerging markets," Narain at UBS said. "It is benefiting
from being relabelled a fast-growth market alongside the likes
of India, China and Indonesia."
Almost 500 funds in Lipper's Global Emerging Markets equity
category have reported allocations to Turkey since end-2012.
Average allocations were 3.3 percent at last count, up from 2.5
percent back in the first half of 2012.
And central bank data released on Thursday, showed that
foreigners' holdings in Turkish equities rose $9.5 billion in
the Dec 28-May 3 period to over $80 billion. Bond holdings
jumped $9.5 billion to $71.8 billion, the bank said.
According to Standard Bank analysts, that suggests a record
$150 billion in foreign portfolio holdings.
"At a time when Europe has been weak you would expect Turkey
to do badly because of its current account deficit. But that's
not been the case," said Waj Hashmi, a fund manager at Schroders
which has significantly raised its allocations to Turkey.
"You have robust banks, low debt, good demographics and
ING Investment Management is underweight emerging stocks,
reckoning they are in for a long period of underperformance. But
in Turkey, it is overweight.
DISPENSING EBRD CASH
All that contrasts starkly with most countries that the EBRD
operates in, whether it is Russia grappling with a commodity
price slump or Egypt in political and financial crisis. This
drove redemptions of $1.1 billion in Jan-April 2013, from the
600 emerging European equity funds tracked by Lipper
Unlike Poland and Hungary, which send three-quarters of
their exports to the euro zone, Turkey has cut Europe's export
share to under 40 percent by finding more markets. Iraq may soon
overtake Germany as Turkey's biggest buyer, for everything from
nappies to machinery.
JPMorgan Asset Management decided at the end of last year to
scrap a fund that invested in shares of eastern European euro
candidates and re-orient it toward Turkey.
Given the investor frenzy, it seems an anomaly that Turkey
will get EBRD investments of over a billion euros this year.
That's a tenth of the annual outlay of a bank created to support
the economies of the former Soviet bloc.
Many say this cash can be better spent in central Europe or
in the new client states of Egypt, Morocco, Tunisia and Jordan.
But the missing piece in Turkey's jigsaw is foreign direct
investment rather than the volatile, yield-seeking kind. FDI
plugs less than a fifth of Turkey's current account gap.
Here the EBRD's cash can make a difference, the bank says.
It argues moreover that Turkey, with still-high poverty levels
and inequality, can also be considered a transition economy.
"Everyone associates Turkey with its developed parts," bank
president Suma Chakrabarti told Reuters. "There are gaps in its
development which the EBRD is trying to address."