Most investors concentrate on the potential of the major emerging markets, such as India and China. That means Turkey is often overlooked. Yet, while it’s “not for the faint-hearted”, the country looks “promising” for long-term investors, says Doug Fabian of Making Money Alert.
Admittedly, it was once a “basket case”. But the past few years have seen it tame inflation, liberalise the economy and lower government deficits. That has all helped to secure average growth of almost 6% between 2002 and 2008. And while growth did slump during the credit crisis, monetary and fiscal stimuli and a healthy banking sector helped cushion the blow. GDP is now rebounding, helped largely by solid domestic demand. It expanded by 6% year-on-year in the fourth quarter, and analysts are now pencilling in a rise of 4%-5.5% in 2010.
There are short-term headaches, however. While the budget deficit of around 5% of GDP is far below Western levels, there is concern over Turkey’s commitment to fiscal discipline, especially with an election due next year. Meanwhile, the current-account deficit is widening faster than expected. Along with large external debts, this leaves Turkey “vulnerable to sharp changes in investor sentiment” if global financial conditions deteriorate again, says the Economist Intelligence Unit (EIU). Note too that 66% of stocks are foreign owned: that could make them volatile.
Political risk is a recurring problem.The governing AKP Party has pro-Islamist roots and is in conflict with the secular military establishment. Last month senior officers were arrested on suspicion of plotting to overthrow the government a few years ago. So, “the political scene will remain volatile” too, says the EIU.
But the long-term outlook is attractive. Turkey boasts a young population likely to swell from 75 million to 90 million by 2030, so there is ample scope for consumption to grow. Car ownership, for example, is at an eighth of US levels. There is strong pent-up demand, says Dean Newman of Invesco Perpetual. “There’s a good chance [Turkey] is five or six years behind where Brazil is today.” It could grow by 4%-5% a year over the long term, agrees Citigroup’s Ilker Domac. The stockmarket is on a 2010 p/e of just 11. One way in is via the US-listed Turkish Investment Fund (TKF), trading on a 10% discount to net asset value.