This ETF allows those who seek investment opportunities in the emerging market a rare opportunity, exposure to a top growing economy within the $5,000 to $25,000 per capita GDP range. The pros and cons with Turkey is its location to an unstable region. Do the potential returns associated with this investment outweigh the risks of being near the Middle East? First, I want to discuss the reasons why investing in Turkey is an exception investment with long term returns.
- S&P upgraded Turkey to one step below investment grade
- Low global interest rates and commodity prices are supporting market performance
- Currency (Lira) has improved, led by Erdem Basci who was named 2012 Central Banker of the Year
- Prime Minister Erodogan has been able to maintain strong relations with the west while capitalizing on growth with the Middle East
- Turkey is undertaking significant infrastructure investments, positioning itself as transit hub
Being in Turkey I am able to see their economic growth and political toughness firsthand as buildings, roads and other infrastructure as constantly being expanded and their strategic political handling with the US and OIC which was only known to Russian chess players. However, Turkey is not without problems. As their economy grows their citizens begin realizing the importance of capitalism, however important sectors such as agriculture are no longer being seen as necessary. Now, I will look at the reasons why Turkey is a potentially poor investment idea.
- Turkey remains relatively under banked with a credit/GDP ratio around 50% (IMF)
- Central Bank maintains a fine balancing act of pushing economic growth towards 15% while keeping inflation low, currently 7.3%
- Turkey is a credit driven economy and major commodity importer, especially energy
- Drop in gold will hurt exports as Turkey used it trade with Iran for energy
- Turkey remains relatively under banked with a credit/GDP ratio around 50% (IMF)
- Potential spillover from Syrian Civil War could create increased military activity, slowing down economic growth
In my opinion Turkey offers great potential with minimal risk. With a young and large population the labor force is strong. Although, parts of Turkey still follow strict Muslim traditions in which girls are still barred from attending school. Granted, this is restricted to eastern Turkey where the minority of the population lives, but it is an important aspect to remember when looking to invest in a nation dominantly Muslim.
How does WSO view Turkey from an investment standpoint, particularly this ETF?
I would choose West African exposure over Turkey, the country is straying from Ataturk's strict secularism and embracing Islamist candidates.
I can't speak for the ETF shares (has iShares MSCI Turkey outperformed the broader MSCI Emerging Markets Index (EEM) ? yet the country is increasingly attracting private equity actors.
Eg.: In February 2011, TPG Capital sold Mey Icki Sanayi, a Turkish spirits company, to Diageo, for $2.1 Bn in Turkey’s biggest private equity sale on record. (Dealbook)
There a PE shop called Turkven, with three mega-funds raised in the last decade, that "co-invested successfully with funds managed by BC Partners, Advent International and Providence Private Equity".
Do you work in the banking sector there ?
In the last year iShares TUR has gained 37%, while the iShares Emerging Markets Index has lost 2%. The Phillipeans and Thailand have performed equally as well but I will cover them another time.
I do not work in the banking sector, I am an air traffic controller here.
Good information!
investment grade update, heavy investment into infrastructure, maintaining stable geopolitical relationship, huge population, etc. are the very basic characteristics of emerging economies these days...
look at Philippines, Indonesia, and most other Southeast Asian economies....
they are the rising stars, on the way of becoming one of the most important economic engines of the 21st century...
I don't think I would pick Turkey over them for long-term investment...
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