Turkey Stocks at Record Prices Lure Mobius With Market Discount
Mark Mobius, executive chairman of Templeton Asset Management Ltd. Photographer: Goh Seng Chong/Bloomberg
Templeton Asset Management Ltd.’s Mark Mobius plans to increase his holdings of Turkish stocks, which rank among the cheapest in emerging markets even after gains pushed prices to record highs.
Turkey’s ISE National-100 index rose 15 percent this year, the most among major European gauges, to an all-time peak today. Valuations at 10.7 times reported earnings, the highest since March, are 30 percent below the 15.3 times multiple for the benchmark MSCI Emerging Markets Index, according to data compiled by Bloomberg.
“We already have over $1 billion invested in Turkey today and expect to invest more,” said Mobius, who oversees about $34 billion as the Singapore-based chairman of Templeton, in an e- mailed response to questions from Bloomberg News. “We remain optimistic about the long term potential of the Turkish economy” and prices are attractive, he said.
The ISE-100 climbed after the government said June 30 that gross domestic product increased 11.7 percent in the first quarter from a year earlier and inflation slowed to the lowest since January as the country pulled out of its deepest recession in more than a decade. The growth rate was the fastest among the Group of 20 major economies, excluding China, and compares with an average contraction of 0.03 percent in 14 central and eastern European countries, Bloomberg data show.
Turkey’s $620 billion economy probably expanded at an annual rate of 9 percent to 10 percent in the second quarter, said Ziya Akkurt, chief executive officer of Akbank TAS, the country’s second-biggest publicly traded bank by market value, in an interview with Bloomberg HT television yesterday.
Economic Bounce
“Growth is recovering very nicely and we are still positive on Turkey as valuations are very attractive,” said Thomas Wilson, who runs an emerging Europe fund at Schroders Investment Management in London and helps oversee about $23 billion. “The market re-rated to a certain extent and there is scope for further positive re-rating.”
The economy is rebounding after shrinking at the fastest pace on record in the first quarter of 2009 as the global financial crisis reduced the capital inflows needed to curb the country’s current account deficit. Turkey imports almost all the oil and gas it consumes, swelling the current account gap.
While government budget deficits widen across Europe, raising concern for debt sustainability, Turkey is collecting more taxes as the economy expands, helping to curb its own financing gap and reduce the cost of borrowing.
Crisis Management
Prime Minister Recep Tayyip Erdogan’s management of the country’s debt, which has remained below the Maastricht criteria of 60 percent of economic output since 2004, prompted ratings upgrades by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings in the past seven months. The country’s debt level may peak at 49 percent of GDP this year and decline to 48 percent by 2012, according to government projections.
Turkey, which needed about $55 billion in loans from the International Monetary Fund from 1999 to 2008 to finance budget deficits, abandoned plans to sign a new loan accord in March. The country has no need for more lending, IMF Managing Director Dominique Strauss-Kahn said during a June 9 interview.
The budget deficit in the first six months of the year narrowed by a third from the same period of 2009 to 15.4 billion liras ($10.2 billion), the Finance Ministry said on July 15. The government’s year-end goal is a deficit of 50.2 billion liras, or about 5 percent of GDP.
Projected Value
Stocks in Istanbul trade below the 11.5 times projected 2010 earnings for Poland’s WIG20 Index and 14.5 times for Brazil’s Bovespa.
The ISE-100 rose 0.6 percent to 60,734.47 at 2:05 p.m. in Istanbul today.
Turkiye Garanti Bankasi AS, Turkey’s biggest bank by market value, led gains on the ISE this year, returning 30 percent compared with a 2.7 percent gain for OAO Sberbank, Russia’s largest bank, and a gain of 5.5 percent for Poland’s PKO Bank Polski SA. Garanti trades at 10.2 times 2010 estimated earnings, compared with 13 for Sberbank and 16.5 for PKO Bank. Turkiye Is Bankasi AS, Turkey’s biggest publicly traded lender by assets, has risen 33 percent this year to trade at 9.35 times estimated earnings.
Is Investment, the country’s biggest broker, raised its recommendation to “buy” for the ISE-100 index and projected the gauge may rally 23 percent in the next 12 months from yesterday’s close, Emre Sezan, a research manager at Is Investment said in a press conference today. Sezan recommended buying Yapi & Kredi Bankasi AS, and state-run lenders Turkiye Halk Bankasi AS and Turkiye Vakiflar Bankasi AS.
Vulnerable
Turkey’s markets are vulnerable to any worsening in the credit crisis in Greece, Portugal and Spain, said Mehmet Buyukeksi, head of the Turkish Exporters’ Assembly.
“Some sort of event in the eurozone periphery is the biggest risk factor for the country as it still depends on raising money externally,” said Paul Biszko, an emerging markets strategist at Royal Bank of Canada in Toronto, in a telephone interview. “Turkey still has structural issues it has to work through.”
Moody’s rates Turkey Ba2, two levels below investment grade, after lifting the country in January. Fitch raised its rating to BB+ in December, or one step below investment grade, and S&P boosted its ranking in February. All three cited budget management and the strength of Turkey’s banking system, which posted record profits last year and required no government funds after the collapse of Lehman Brothers Holdings Inc. in 2008.
‘Transforming Itself’
The stock rally is occurring as banks lend more to consumers and companies. The central bank has kept the benchmark interest rate at an historic low of 7 percent and inflation has slowed to a three-decade low.
“Turkey is in the process of transforming itself into a very competitive and fast-growing economy, backed by manageable inflation, low interest rates and a stable government,” Mobius said.
Economic growth rates mean Turkey created as many new jobs in the past year as the whole of Europe, Sabah newspaper reported on July 19, citing Finance Minister Mehmet Simsek.
“We continue to see Turkey leading the way in the region,” said Simon Quijano-Evans, head of emerging-market research at Credit Agricole Cheuvreux in Vienna, in an interview. “Markets are rewarding low debt and political credibility.”
To contact the reporters on this story: Seda Sezer in Istanbul at ssezer2@bloomberg.net.
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