Turkey remains resilient to global downturn, says HSBC

The Turkish equity market has been one of the world’s best performing equity markets with a year-to-date return of more than 30% in dollar terms. Although there may be a short-term correction as the global stock market rally pauses for breath, optimism remains in the medium to long term as the country continues to emerge as a regional economic power, according to HSBC Global Asset Management.

Ercan Güner, manager of the $172m HSBC GIF Turkey Equity fund, managed from Istanbul, said the Turkish economy remained resilient to the global economic downturns witnessed in recent years, benefiting from low levels of public and household debt, favourable demographics and a solid and profitable banking industry.

Güner said that after posting strong GDP growth rates of 9% in 2010 and 8.5% in 2011, Turkey’s growth rate is expected to moderate to 3.6% in 2012, according to the latest survey of consensus expectations released by Central Bank of Turkey (CBT). This would represent a soft landing rather than a return to the “boom and bust” periods that the Turkish economy typically experienced in the 1990s.

Turkey also remains somewhat insulated from the economic crisis in Europe, HSBC GAM said. “Although Europe is a major export destination, Turkey managed to increase its export performance by gaining market share across EU markets where demand for cheaper quality products has increased.”

The country’s strong export performance was also due to its strengthening trading links with MENA countries. “Being highly dependent upon imports of energy and raw materials, the Turkish economy has also benefited from easing oil and commodity prices.”

These combined factors have helped to reduce the sizable current account deficit, which reached 10% of GDP in 2011, whilst inflation has dropped to 9.1% from double digits in 2011 and is expected to decline further to 6.7% by year-end according to the CBT’s latest survey.

Güner said: “Although the large current account deficit constitutes one of the main risks for the Turkish economy, we remain encouraged by the Government’s recently-introduced incentive scheme to tackle the structural and long standing current account deficit problem over the long term and also by CBT’s flexible monetary policy over the short-term.”

Despite its strong year-to-date performance, the Turkish equity market remains inexpensive, Güner said. Valuations are trading on Price Earnings Ratios of 10x, which is close to both the five-year historical average and the broader emerging market average.

This positive view on Turkey is also reflected via the HSBC GIF Global Emerging Markets Equity Fund. As a result of the bottom up stock picking process, the largest overweight position is in Turkey, which represents 7.1% of this fund, more than four times the benchmark/neutral weighting of 1.7%. The fund has been overweight in Turkish equities since early 2011.

The HSBC GIF Turkey Equity fund is a top decile performer over the past three years, returning 65.4% compared to the Morningstar Offshore Equity Sector average return of 50.8% over the same period. Year to date, the fund is the fourth best performer of all Ucits funds, with returns of 47.2%. (Source, Morningstar Direct, Data as of 31 July, Total Return, Gross of Tax, Euro). The Luxembourg based fund is registered for sale in 27 countries globally (including 21 in Europe).

HSBC Global Asset Management has $134bn invested in emerging markets as at end June 2012.

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