After Trump’s win and the greenback’s exorbitant surge, emerging markets like Turkey went into trouble tailspin. Troubles may turn more acute for Turkey given the country’s frequent political upheavals (read: ETF Asset Flow in Election Week).
So, for investors intending to know about this Turkey ahead of Thanksgiving, we would like to dish out the economic and stock market outlook of the country and its impact on the ETF world.
The pure-play Turkey ETFiShares MSCI Turkey (TUR – Free Report) lost about 6.9% in the last 10 trading days (as of November 21, 2016) and the product is off over 8.6% so far this year. So, it is not only the bird Turkey which is seeing a fall in prices this Thanksgiving, Turkey ETF too are facing the same fate (read: A Spread of Top-Ranked ETFs for Thanksgiving and After).
What’s Behind the Bearishness?
Bleak Growth Prospect
The Turkish economy grew 0.3% sequentially in Q2, slackening from a downwardly revised 0.7% increment in the previous period and marking the poorest growth rate in seven quarters. Exports and household spending was a drag to the economy.
Speculation is rife that the country’s Q3 growth rate will likely be “the worst rate for the past 27 quarters” at around negative 0.5%. If this comes true, the Turkish economy would shrink for the first time since mid-2009.
IMF expects growth to slow down to 3% in 2017 from this year’s 3.3%. The government’s 2017-19 medium-term economic program indicates 3.2% growth for 2016 and 4.4% for 2017, which seems a tall order now.
Investors should note that the country faced a military coup attempt on July 15 to oust Turkish President Recep Tayyip Erdogan, though it finally failed. Needless to say, such political threats are detrimental to the investment world (read: Political Instability Puts Turkey ETF in Focus).
If this isn’t enough, there is growing disharmony between Turkey and Europe and the Turkish president is mulling over to “take its EU membership bid to a referendum (see all European Equity ETFs here).”
Lira at Historic Low
As far as inflation is concerned, consumer prices grew 7.16% year over year in October 2016, after a 7.28% increase in the previous month. With the greenback soaring on the Fed’s policy tightening outlook and rising inflationary expectations, Turkish lira plunged to a historic low on November 18 (read: ETF Winners & Losers as Dollar Hits 13-Year High).
As U.S. Treasury bond yields started to rise post election, relatively high-yielding emerging market equity funds saw $6.2 billion of asset outflows, the highest since August 2015, ruining 35% of inflows year to date, as per the source. And Turkey is also to feel the brunt of this depletion.
All in all, tensions persist in the country and it’s better not to taste this ETF now. Below we highlight the key details of the fund. The fund has a Zacks ETF Rank of #5 (Strong Sell) with a High risk outlook.
TUR in Focus
The ETF provides a pure play exposure to 70 Turkish stocks. The fund is highly concentrated on its top 10 holdings which make up for nearly 60% of assets. Financials dominates the fund’s returns with less than half of the portfolio while industrials and consumer staples take double-digit exposure in the basket.
The fund has amassed around $308.1 million in its asset base. The fund charges 62 bps in annual fees from investors and yields 5.40% annually (as of November 21, 2016). TUR has Zacks ETF Rank #5 with a ‘High’ risk outlook (see: all broad Emerging Market ETFs here).
This article is brought to you courtesy of Zacks Research.