Turkey searches for growth and strong monetary policy in 2012 (TUR, TKC)

Turkey has seen remarkable growth over the last couple of years and should continue to experience strong relative growth.  After 8.9% growth in 2010 and an expected 7.8% reading to close out 2011, the economy may cool in 2012 due to external pressures and a more restrictive stance by the central bank.

The bank had previously cut rates to preempt economic weakness but has since adopted a hawkish policy against inflationary pressures and lira weakness.

Following the last inflation report, a rate corridor was set at 5.75% to 12.5% though the bank is not likely to increase rates significantly in the face of slowing growth.

Despite the continued performance of the economy, unemployment remains stubbornly high and inflation is showing no signs of slowing.

Further weakness in Europe could threaten the inflow of foreign capital with which Turkey has used to fuel its economic growth. The current account deficit is dangerously high and looks to remain in excess of 8% in the coming year.

This elevated risk to the economy warrants a neutral short-term position while the longer-term outlook remains positive.

The iShares MSCI Turkey Investable Market (TUR, quote) provides broad diversification across the market while exposure can also be gained through the regional funds and within some broader emerging market funds.

U.S. investors have access to a few over-the-counter Turkish stocks, but only one major depository receipt, Turkcell (TKC, quote).  The $11 billion telecommunications provider offers business and consumer services across the country with 54% of the market.

The stock has fallen by 23.0% in the last twelve months and currently trades for 13.8 times trailing earnings. The company has a significant cash cushion on its balance sheet and should benefit as the penetration of telecom services grows to developed standards. 

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