Turkey impresses as the best of emerging markets

Turkey’s improving macro-economic outlook and growing political role means investors sense a success story.

Turkey is climbing its way to the top of all the right rankings. Its politicians are being sought out for prestigious conferences, and its dispersed citizens (fund managers among them) are returning to build businesses and enjoy an increasingly rich and sophisticated lifestyle. In an otherwise dismal global economic outlook, Turkey is a bright spot.

Over the summer, Josef Ackermann, former Deutsche Bank supremo and frequent adviser to German chancellor Angela Merkel, quietly joined the board of Turkey’s Akbank, itself a rising star, with healthy profits and strong ambition.

Akbank CEO Hakan Binbaşgil said Turkey aims to join the top ten league of global economies by 2023, and the bank will be at the front of that charge.

Upturn or bubble?

There are few other markets that offer such a positive combination of factors, but given the precarious conditions faced by many of the world’s economies, could Turkey’s recent success falter? Sceptics have called the upturn a “bubble” and point out that Turkey still carries all the non-financial risks that have afflicted emerging markets for decades.

However, others identify a unique opportunity to engage before prices fully reflect the market’s transformation. Aziz Unan runs Renaissance Asset Managers’ long-only, value-orientated Ottoman fund, investing in listed equities only. He says investors need to compare opportunities across the emerging market asset class.

China has been investors’ favourite recently, but Turkey offers “China-like growth at half the valuation”, he observes.

Ted Cominos, a private equity partner at law firm Edwards Wildman, has executed cross-border private equity and corporate backed M&A transactions throughout Turkey, Central Europe, Russia, the Middle East and North Africa.

He says there are too many factors supporting long-term success for Turkey to stumble now. Most notable is its favourable demographics, where a young, upwardly mobile population is increasingly using the internet, credit cards and mobile phones, providing Turkey with one of the highest levels of penetration growth rates in these key sectors.

Unan points out that Turkey has also managed to diversify its economy seasonally, so that labour-intensive sectors such as agriculture and tourism peak at different times.

That feeds through into more stable employment for the 700,000 to 800,000 Turks joining the workforce each year. The jobless rate has dropped from 13.5% four years ago to 9%.

This achievement hides unmeasured immigration costs. Turkey’s stability and political influence mean it is “soaking up regional economic strains”, absorbing workers from Iraq, Syria and Cyprus, and still delivering economic growth, Unan says.

HSBC Global Asset Management also believes the country occupies “a sweet spot” because of its positive demographics, low personal, corporate and sovereign debt levels and solid banking sector.

Ercan Güner, Istanbul-based manager of the $172m HSBC GIF Turkey Equity Fund, notes the economy remains resilient to global influences, although its GDP growth rate is expected to moderate this year and next, to some 3.6%. “This would represent a soft landing rather than a return to the boom and bust periods typically experienced in the 1990s,” he says.

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