Turkey ETF is Vulnerable, Primed to Retreat

The iShares MSCI Turkey ETF (NASDAQ: TUR) is up more than 35% year-to-date, good for one of the best performances among emerging markets single-country exchange traded funds. In theory, TUR’s 2017 performance should be chastening those bearish on Turkish stocks.

On the other hand, some market observers believe Turkish equities are primed to retreat. Turkey accounts for barely more than 1% of the widely followed MSCI Emerging Markets Index, making TUR the desired avenue for investors looking to access Turkey’s equity markets.

Earlier this year, Turkish voters voted to disband the country’s parliamentary system and install a strong presidential form of government.

Many political analysts and market observers are concerned the decision will give President Recep Tayyip Erdogan more power and turn into a threat to Turkish democracy. Last year, Turkish stocks and TUR tumbled following a failed coup. Turkish markets plummeted on concerns of the implications of the ensuing political turbulence after a failed coup d’etat attempt from the military branch. The country is still under a state of emergency related to that coup.

With Monday’s slide, TUR is off nearly 9% over just the past week.

“The reversal implies NN Investment Partners, which has been underweight on Turkey this year, and Hermes Investment Management, which shunned the market altogether, can at last see their bearish strategy beginning to work,” reports Bloomberg. “The Hague-based NN Investment Partners is shorting Turkish equities in the funds it has the mandate to do so and may increase its underweight position in others.”

Related: Turkey ETF Deals With President Erdogan’s Power Play

TUR, home to nearly $397 million in assets under management, holds 65 stocks. Over 37% of the ETF’s holdings hail from the financial services sector. The industrial and consumer staples sectors combine for 28% of the ETF’s weight.

Turkish “equities posted the best gains since 2009 for January-August amid a surge in state-backed lending, faster-than-expected economic growth and tempting valuations. The central bank’s tightening policy stabilized the lira, providing an additional boost to the stock market. Analysts’ earnings projections for companies on the Borsa Istanbul 100 Index extended to a record high,” according to Bloomberg.

Underscoring the volatility that often comes with Turkish stocks, TUR has a three-year standard deviation of 24.5%, well above the same volatility gauge on the MSCI Emerging Markets Index.

For more stories on the lone Turkey ETF, visit our Turkey category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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