Turkey ETF Surges Despite Economic Concerns

November 22, 2022

While economists may groan at Turkey’s leaders cutting interest rates to fight runaway inflation, the country’s stocks and an exchange-traded fund focused on the nation are having the opposite reaction. 

The iShares MSCI Turkey ETF (TUR) was the top-gaining ETF Tuesday, according to Yahoo Finance, surging 5.7% and pushing its year-to-date gain past 67%.  

The $324.4 million ETF tracks the MSCI Turkey IMI 25/50 Index, and includes large, mid and small cap companies, with the top three being agriculture chemicals firm Hektas Ticaret, retailer BiM Birlesik Magazalar and steel manufacturer Eregli Demir ve Celik Fabrikalari. 

The ETF’s surge and that of the Borsa Istanbul run contrary to a variety of economic and monetary data that on the surface would appear to be battering stocks: inflation tops 80%; the lira is plunging; and bad, or nonperforming, bank loans are soaring. Meanwhile, agencies have repeatedly cut Turkey’s credit rating so that it now sits at junk status. 

Stocks continue to climb thanks to what helped fuel U.S. markets over the past few decades: low interest rates. Under Turkey’s President Recep Tayyip Erdogan, rates have been slashed aggressively in recent months—by 500 basis points—on worries of a slowing economy.  

Turkey is seeking to protect economic growth that reached 7.5% for the first half of the year. Rates are currently at 12%, and later this week may be cut again to 9%. 

Still, outside investors are staying away from TUR, which had $98.4 million in outflows this year, according to ETF.com data. Foreigners own a record low of 29% of the Borsa Istanbul, Bloomberg reported, while at the same time, retail investors in Turkey are piling in. 

 

Contact Ron Day at [email protected] 

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