Turkey stocks skyrocket as growth, tax revenues rise

Ankara: Templeton Asset Management Limited's Mark Mobius plans to increase his holdings of Turkish stocks, which rank among the cheapest in emerging markets even after gains pushed prices to record highs.

Turkey's ISE National-100 index rose 15 per cent this year, the most among major European gauges, to an all-time peak yesterday. Valuations at 10.7 times reported earnings, the highest since March, are 30 per cent below the 15.3 times multiple for the benchmark MSCI Emerging Markets Index, according to data compiled by Bloomberg.

"We already have over $1 billion [Dh3.67 billion] invested in Turkey today and expect to invest more," said Mobius, who oversees about $34 billion as the Singapore-based chairman of Templeton, in an emailed response to questions from Bloomberg News.

"We remain optimistic about the long term potential of the Turkish economy" and prices are attractive, he said.

The ISE-100 climbed after the government said June 30 that gross domestic product increased 11.7 per cent in the first quarter from a year earlier and inflation slowed to the lowest since January as the country pulled out of its deepest recession in more than a decade. The growth rate was the fastest among the Group of 20 major economies, excluding China, and compares with an average contraction of 0.03 per cent in 14 central and eastern European countries, Bloomberg data show.

Turkey's $620 billion economy probably expanded at an annual rate of 9 per cent to 10 per cent in the second quarter, said Ziya Akkurt, chief executive officer of Akbank TAS, the country's second-biggest publicly traded bank by market value, in an interview with Bloomberg HT television on Wednesday. "Growth is recovering very nicely and we are still positive on Turkey as valuations are very attractive," said Thomas Wilson, who runs an emerging Europe fund at Schroders Investment Management in London and helps oversee about $23 billion. "The market re-rated to a certain extent and there is scope for further positive re-rating."

Crisis management

The economy is rebounding after shrinking at the fastest pace on record in the first quarter of 2009 as the global financial crisis reduced the capital inflows needed to curb the country's current account deficit. Turkey imports almost all the oil and gas it consumes, swelling the account gap.

While government budget deficits widen across Eur-ope, raising concern for debt sustainability, Turkey is collecting more taxes as the economy expands, helping to curb its own financing gap and reduce the cost of borrowing.

Prime Minister Recep Tayyip Erdogan's management of the country's debt, which has remained below the Maastricht criteria of 60 per cent of economic output since 2004, prompted ratings upgrades by Moody's Investors Service, Standard & Poor's and Fitch Ratings in the past seven months. The country's debt level may peak at 49 per cent of GDP this year and decline to 48 per cent by 2012, according to government projections.

Turkey, which needed about $55 billion in loans from the International Monetary Fund from 1999 to 2008 to finance budget deficits, abandoned plans to sign a new loan accord in March. The country has no need for more lending, IMF Managing Director Dominique Strauss-Kahn said during a June 9 interview.

Deficit

The budget deficit in the first six months of the year narrowed by a third from the same period of 2009 to 15.4 billion liras (Dh37.3 billion), the Finance Ministry said on July 15. The government's year-end goal is a deficit of 50.2 billion liras, or about 5 per cent of GDP.

Stocks in Istanbul trade below the 11.5 times projected 2010 earnings for Poland's WIG20 Index and 14.5 times for Brazil's Bovespa.

The ISE-100 rose 0.6 per cent to 60,734.47 at 2.05pm in Istanbul yesterday.

Turkiye Garanti Bankasi AS, Turkey's biggest bank by market value, led gains on the ISE this year, returning 30 per cent compared with a 2.7 per cent gain for Sberbank, Russia's largest bank, and a gain of 5.5 per cent for Poland's PKO Bank Polski. Garanti trades at 10.2 times 2010 estimated earnings, compared with 13 for Sberbank and 16.5 for PKO Bank. Turkiye Is Bankasi, Turkey's biggest publicly traded lender by assets, has risen 33 per cent this year to trade at 9.35 times estimated earnings.