Turkey has flown higher than all global stock markets this
year and could very well be the best investment in Europe for
years to come, thanks to its improved credit rating, government
reforms, low unemployment rate and young population full of
workers and consumers.
IShares MSCI Turkey (
) soared an eye-popping 60% so far in 2012. That's phenomenal
compared to the 14.72% return foriShares MSCI EAFE Index (
), tracking developed markets, and 14.17% foriShares MSCI
Emerging Markets Index (
The Southeast European country benefited from coordinated
economic stimulus by the European Central Bank, the Federal
Reserve, Bank of England and the Bank of Japan, which increased
market liquidity and fueled fund flows into higher-risk emerging
In early November, Turkey regained an investment-grade credit
rating from Fitch Ratings after 18 years of junk status. Fitch
cited Turkey's shrinking government debt levels, strong banking
system, good medium-term growth prospects and diverse
The country is likely to attract new fund flows from funds and
institutions that only invest in investment-grade countries.
Fitch also upgraded more than a dozen Turkish banks the prior
month. The country's dovish central bank has kept interest rates
low with high reserve requirements to prevent a credit bubble.
Falling interest rates are helping improve banks' margins and
asset-quality outlook, says Ted Cominos, a partner at Edwards
Wildman Palmer LLC, a Boston law firm. He specializes in
organizing and coordinating private-equity and
mergers-and-acquisitions deals in emerging European
Turkish banks are expected to boost lending volume by 15% to
20% over the next three to five years, which supports business
growth. The country is undergoing structural reforms to modernize
its legal system in hopes of encouraging foreign direct
investments, according to Cominos.
The country's unemployment rate has fallen to 9.2% from about
15% in 2009, undercutting the European Union's new high of 11.7%.
The Economist estimates the country's gross domestic product will
expand 4.1% in 2013 after growing 3% this year. Turkey's average
per capita income of $11,840 is only about a third of Europe's,
so it has plenty of room to grow to reach parity.
The real estate, energy and banking sectors have been this
year's biggest growth drivers on the Istanbul Stock Exchange,
according to Andrew Schrage, founder of MoneyCrashers.com, a
With Europe as its major export market and source for foreign
direct investments, Europe's recession threatens to choke off
inflows to the country. But Turkey has been increasing exports to
Russia and the Middle East, which should offset eurozone
weakness, says Ivka Kalus-Bystricky, manager of Pax World
International and Pax World Global Women's Equality in
The country's debt-to-gross domestic product ratio of 42.4% is
far below the country's average of 53% between 2000 and 2011,
according TradingEconomics.com. This pales in comparison to most
developed countries, in which debt-to-GDP rates hovers above
"This means deleveraging will not be a head wind to growth in
Turkey, unlike in developed markets," Kalus-Bystricky, who
manages $78 million between her two funds, wrote in an email. "I
believe this makes Turkey's growth more sustainable as well as
more valuable relative to what is available in developed
markets." She believes Turkey's stock market has at least 30%
With a median age of 29 years, its population is full of
workers and consumers and should create a more productive economy
than most of Europe, which has a median age of 40.
The country may prove to be the single best investment among
the emerging European countries, says to Daniel Skolnick, a
senior analyst at Sabrient Systems, an investment research firm
headquartered in Santa Barbara, Calif.
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