Turkey ETF Jumps as Officials Meet

January 18, 2023

The $376.7 million iShares MSCI Turkey ETF (TUR), which tracks several dozen Turkish equities, jumped 6.7% Tuesday and was among the day’s top ETF gainers. 

The price spiked as Turkish Foreign Minister Melvut Cavusoglu prepares to meet with U.S. Secretary of State Antony Blinken this week. The two are expected to discuss diplomatic concerns around Turkey purchasing Russian-made missiles and Turkey’s involvement in the Syrian civil war, where the U.S. is supporting Kurdish militants, according to ABCNews.com. 

Gains in Turkish stocks were a global outlier last year, and today’s gains suggests the possibility of a repeat. The country’s Borsa Istanbul 100 Index tripled in 2022, outstripping the rest of the world’s major stock markets, which largely tanked.  

Still, the index’s return is largely seen as not dependent on the strength of the country’s economy, and foreign investors have been taking their money from the market. 

Last year, Turkish inflation soared to 85.5%, and the country’s currency continued its decade-long decline. President Recep Tayyip Erdogan has disregarded conventional wisdom around inflation by slashing interest rates in the belief that doing so will lower inflation.  

In contrast, the U.S. saw its highest inflation in 40 years last year, and the Federal Reserve has been steadily raising interest rates to get it under control. Inflation peaked last June with a CPI increase of 9.1%, though it had moderated to 6.5% in December.  

Turkish citizens have responded to the sky-high inflation and devalued currency by plowing money into the country’s stock market to hedge their increased costs and help to drive its high returns. However, foreign investors aren’t really biting. The U.S.-listed TUR has seen outflows of about $83 million since the start of last year, suggesting U.S. investors weren’t betting on Turkish stocks.  

Turkish inflation slipped to 64.3% last month, according to a Reuters article on Monday, which noted that a poll of 12 economists projected the country to wind up the current year with inflation at 42.5% and continuing to fall in 2024. 

Turkey was averaging 5.8% annual GDP growth from 2002 to 2021, Euronews added. However, the economic turmoil seems to be taking a toll. According to Reuters, the polled economists put the country’s GDP for 2023 and 2024 at around 3%.  

The Economist recently said Turkey’s economic conditions are unsustainable and that the situation might lead to the government instituting capital controls. Despite this, the article notes that “Economists still say Turkey’s long-term prospects are bright,” thanks to its capacity to compete with China within Europe’s supply chain, its strong infrastructure, and thriving financial and technology sectors.  

Mismanagement notwithstanding, the country could find itself among the top 10 economies by 2040 if the correct policies are implemented, the article said.  

 

Contact Heather Bell at [email protected] 

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