As the lone ETF tracking the intriguing emerging market that
is Turkey, the iShares MSCI Turkey Investable Market Index Fund
) is not lacking for headlines. With average daily volume of
almost 306,000 shares and assets under management of $418.6
million, the iShares MSCI Turkey Investable Market Index Fund has
also solidified its status as a large, liquid, thriving emerging
Those are nice feathers in any ETF's cap, but they're also
superficial superlatives. Let's drill down on why, despite
already being up more than 23% year-to-date, why the "T" in the
still has significant upside left to deliver.
Many of the most notable emerging markets are heavily dependent
on the production and export of raw materials. That's certainly
the case with Brazil, Russia and South Africa, just to name a
few. That's fine when the risk on trade is really on and
investors are convinced the world is heading toward a commodities
super-cycle, but the real evolution of an emerging market economy
comes through making the move to a more Western,
That's something Turkey already has. Agriculture is still a
significant part of the Turkish economy, but as the CIA World
Factbook notes, "aggressive privatization program has reduced
state involvement in basic industry, banking, transport, and
communication, and an emerging cadre of middle-class
entrepreneurs is adding dynamism to the economy."
TUR features an allocation of just 8.6% to materials,
reflecting Turkey's evolving, free market economy.
Looking at an atlas shows us that Turkey is close to Greece and
not all that far from Italy. In other words, some
financially-challenged countries are almost in Turkey's backyard.
Turkey has its own challenges, namely the world's second-largest
. It is shrinking though, having fallen to $75.2 billion in
February from $77.1 billion in January, according to the
Financial Times. Economists expect Turkey's deficit/GDP ratio to
be significantly trimmed this year.
What's one of the reasons Japan bears always give for
avoiding/shorting Japanese stocks? That country's aging
population. Well, Turkey enjoys the better side of the
demographic coin as half its population is under the age of 29.
Estimates show it may be up to another four decades before
demographics become a real issue for the Turkish. That's plenty
of time to enjoy significant upside in TUR.
Falling Debt/GDP Ratio
There are plenty of Western countries that should be going to
great lengths to achieve Turkey's debt/GDP ratio, which was an
impressive 40% last year. Yes, Turkey's inflation is high (it
checked in at over 10% last month), but criticisms of Turkish
inflation need to be taken with a grain of salt. As
the Economist notes
Turkey's rate of inflation approached 70% in 2002.
Ben Bernanke, Tim Geithner and friends might want to take note of
how monetary policy works in Turkey. Even before Bernanke and
Geithner came around, their predecessors waged a war to kill the
U.S. dollar. The Central Bank of Turkey does not feel the same
way about its lira. The overnight lending rate is 5% in Turkey,
but the central bank has been spotted grabbing higher rates to
avoid too much cheap money flooding the economy.
Other ETFs with significant Turkey exposure: SPDR S&P
Emerging Europe ETF (NYSE:
), which has 15.5% exposure to Turkey, and the iShares Emerging
Markets Dividend Index Fund (NYSE:
), which has 8.56% exposure to Turkey.
To learn more about Turkey and TUR, please click
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