East Capital spots reasons for Turkey’s 2012 surge

There are a number of reasons to explain why the Istanbul Stock Exchange is up 23% so far in 2012, said East Capital senior analyst Emre Akcakmak.

“Turkish equities in general were hit very hard in 2011, and the Turkish stock market has been catching up with its emerging peers,” Akcakmak said.

“A large number of Turkish stocks were trading at unreasonably low valuation levels. The Turkish Central Bank’s increasing credibility contributed to rallies on both equity and bond markets. The recent appreciation of the Turkish lira against the dollar also contributed to the superior market performance.”

“Turkey has been growing above its sustainability potential for the past two years. This high growth did bring some side effects, including a high current account deficit and an increase in inflation.”

“Investors pay a lot of attention to the Turkish financial sector; namely banks, which make up roughly 40% of the total market capitalisation. Banks were leading the recent rally, as it is usually the case.”

Turkey has recovered strongly from a major financial crisis a decade ago, notes Akcakmak. At that time both budget deficits and inflation were high, with ineffective central bank policies – inflation averaged 70% annually.

However, the status quo was changed when the country signed an IMF standby agreement, which included a number of structural reforms and injected short-term liquidity into the economy.

“Turkish politicians stuck to the standby program, which laid the foundation for Turkey’s strong economy that we see today.”

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