. A return of 13 percent since September on Turkey’s main stock index has beaten all global gauges bar two, the Shanghai Stock Exchange
Composite and Venezuela Stock Market Index,
according to data compiled by Bloomberg. There’s no reason to
suspect that outperformance won’t continue, says BlackRock
Inc. (BLK)’s Sam Vecht. “Clearly the oil price
is a game changer for Turkey,”
Vecht, who oversees $2.7 billion across five emerging- and
frontier-market funds, said in e-mailed comments from London on
Dec. 1. “When some small things change, the upside in Turkey
can be quite staggering.” BlackRock, alongside Wells Fargo & Co. (WFC), was among buyers in Turkey’s biggest initial public offering this year, snapping up almost 10 percent of available shares in insurer AvivaSA (AVISA) Emeklilik & Hayat AS. By the end
of November, Vecht had increased Turkey’s weighting in the BlackRock Emerging Europe Fund to about 28 percent, above the 22 percent benchmark.
That’s even more than it was at the beginning of the year, when BlackRock was “aggressively bullish” on Turkey, Vecht said. At the time, the fund was piling into financials that were slumping into a bear market partly induced by a corruption scandal that spooked investors
. Below-book valuations made
Turkish equities “compelling,” Vecht said at the time. Corruption Scandal
Lender Turkiye Halk Bankasi AS (HALKB) is the biggest holding in the BlackRock Emerging Europe Fund, according to records on the company’s website. The bank’s former chief executive officer was among those arrested in the corruption probe last December, charged with accepting bribes to faciliate trade in gold with
Iran. The charges against then-CEO Suleyman Aslan were dismissed
earlier this year, after he stepped down. Halkbank, which is up 18 percent this year, is trailing the Borsa Istanbul’s 25 percent surge. The shares are still 8.9 percent below their value on Dec. 16, the day before the corruption scandal was made public.
“People get overly exicted or overly depressed with some of the stocks there,” Vecht said. “But if one has a clear sense of where valuation lies, there are quite significant opportunities.”
Borsa Performance
The Borsa Istanbul main index is also still about 9 percent below its record high on May 22, 2013, before the Federal Reserve said it was considering ending its extraordinary bond purchases, also known as quantitative easing. Turkish banks trade at an 8 percent discount to peers in emerging markets on price-to-book value, according to a report by Istanbul-based brokerage FinansInvest on Dec. 9.Vecht’s optimism on Turkey chimes with the view of Tim Ash, chief emerging markets economist at Standard Bank Group Ltd. in London, who yesterday said that oil prices mean Turkey may soon warrant a rebranding as a “Favoured Five” economy, shaking off the “Fragile Five” label Morgan Stanley gave it in 2013.
Turkey’s large current account deficit warranted its inclusion on that list, Morgan Stanley (MS) said then. The gap has since narrowed, by 38 percent in October from the previous year, and that’s before oil and energy prices have been fully factored in, according to Ash.
Each $10 drop in the price of a barrel of oil cuts Turkey’s current-account deficit by about half a percentage point of GDP, state-run Anadolu Agency quoted Deputy Prime Minister Ali Babacan as saying in New York on Dec. 4. The price of brent crude was $63.34 at 9:55 a.m. in Istanbul today, down from $108.67 a year ago. Turkey imports about 90 percent of its oil.
That makes Turkey one of the most “significant winners” from the energy price shakeup, Vecht said.
“Many stocks have been reporting - perhaps not blowout numbers - but definitely numbers that show very acceptable rises in profit year on year, beating expectations,” he said. He cited flag carrier Turkish Airlines (THYAO), which has jumped to almost 10 liras from below 7.50 liras six weeks ago. “There will come a time when those stocks once again hit our target prices and we look to reduce, but I don’t think we’re at that stage yet,” he said.
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