Does Turkey’s Current Chaos Provide a Good Emerging Market Buying Opportunity?


“Before enlightenment, chop wood, carry water, after enlightenment chop wood, carry water.” — Zen Proverb


As Wall Street seeks to end the year on the rush of high notes it has been hitting with surprising regularity over the course of 2013, another global equity market on the periphery of the European Union (EU) has been staggering under the weight of strong political headwinds.

So while the U.S. equity market could arguably be entering top-heavy territory in many respects, one of the EU’s current candidate countries, Turkey, may provide intrepid investors with the sort of opportunity that only emerging markets can provide.

The S&P 500 Index (SPX) ended the week up 1.3%, bringing its gains to a total of over 29% year-to-date (YTD). The Dow Jones Industrial Average (DJIA) did even better, adding 1.6% to its record-setting bottom line.

Meanwhile, the Nasdaq Composite Index (COMP) continued to approach the highs of the dot-com bubble era, with a gain of 1.3% on the week. YTD, the COMP sits at a sweet 38% performance gain as of last Friday.

But across the Atlantic, Turkey’s equity market continued to flail, as a massive corruption scandal rocked the current administration.

The corruption charges leveled against the administration of the current Prime Minister Recep Tayyip Erdoan appear to be at the heart of a power struggle between Erdogan and his former ally, Fethullah Gulen.

The stakes of the political drama are high, and the uncertainty has caused Turkey’s Borsa Istanbul National 100 Index to fall to its lowest levels in over 18 months.

But many of the same economic fundamentals of the country that have attracted a substantial influx of investment capital remain in place, and once the political dust has settled Turkey could flesh out its potential to become a regional economic powerhouse.

TUR (MSCI Turkey Investable Market Index Fund) provides exposure to the Turkish equity market, which it tracks. That exposure would have cost an investor quite a bit this year, as TUR has lost 31% YTD.

In fact, over the last two weeks, the ETF has lost nearly 20% in what may be directly attributed to the uncertainty revolving around the government corruption charges resulting in a string of high-profile cabinet and ministerial personnel changes.

So, with TUR touching intraday on its two-year low, does the current price level provide a good buying opportunity?

It very well might.

In spite of the political battles that currently are going on in Turkey, the country retains some attractive characteristics as a longer-term investment.

Chief among these are its nearly twenty-year record of relatively steady growth, as well as its unique position as a gateway between East and West.

The East-West axis positioning has contributed, to a large degree, to Turkey’s historical glory. And in spite of the current politics, it may once more prove to be the country’s strong suit, and risk-tolerant investors winning hand.

ETF Periscope

Full disclosure: The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Daniel Sckolnik or Sabrient. Neither Daniel Sckolnik nor Sabrient makes any representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.