Turkish private pensions will shift money into stocks this year as new government incentives and low interest rates reduce the appeal of fixed-income securities, according to Austria’s Erste Group Bank AG.
Stock-picking will become more important than ever, meaning equity research will gain in importance at Turkish brokerages, Can Yurtcan, head of research at Erste Securities Istanbul, a unit of Vienna-based Erste, said in an interview.
Turkey said on Jan. 3 that it would match 25 percent of all private pension contributions, aiming to reverse a drop in national savings, while also reducing the fees fund-management companies are allowed to charge, incentivizing them to invest in riskier assets with higher returns. The government is also aiming make pension plans more attractive to conservative Muslims, who can’t invest in securities that pay interest.
“With the new pension law and the low-interest-rate environment, the actively managed equity fund business will grow very fast,” Yurtcan said.
Turkey’s benchmark ISE-100 stock index jumped 66 percent in dollar terms last year, a period when yields on benchmark two-year government notes dropped by almost 5 percentage points. Policy makers have lowered key interest rates at each of the six monetary policy meetings since Sept. 18.
The Turkish private pension industry’s assets under management have increased 7 percent to 21.7 billion liras ($12 billion) since the end of 2012, and they’re expected to grow about 30 percent this year, according to Mehmet Bostan, chairman of the Istanbul-based Pension Monitoring Center.
The Turkish Capital Markets Board ruled earlier this month that investment funds based on gold, Islamic-compliant sukuk and other non-interest-bearing instruments can be set up and added to portfolios of private pension funds.
“With funds based on gold and other interest-free instruments also being added to pension fund portfolios, we’ve started seeing and will see significant growth,” Yurtcan said.
Turkey’s gross national savings dropped to 12.3 percent of gross domestic product last year, according to International Monetary Fund data. That compares with 28.7 percent for Russia, 16.3 percent for Poland and 20.4 percent for Hungary, IMF data show.