Turkish markets among most attractive - analyst

Turkey’s financial markets may now present one of the most attractive investment opportunities over the coming years thanks to the depreciation of the lira and economic growth, wrote Tarek El Sherbini in Seeking Alpha.

While the lira has slumped in the past few weeks, prompting all kinds of doomsday scenarios, the Turkish economy, along with the government’s low debt to GDP ratio, is resilient enough to abosorb the currency shock, said El Sherbini, who is an equities analyst and investor. Comparisons with crisis-ridden Argentina are unfair, he said.

Higher interest rates in Turkey – the central bank raised the benchmark rate by 300 basis points to 16.5 percent last week – increases the attractiveness of the lira and lira-denominated debt, he said.

“The weakening lira should actually be good news for the Turkish economy,” El Sherbini said. “It is a key factor to help the country narrow its current account deficit by increasing the competitiveness of exports of goods and services, while making imports less competitive.

“While the Turkish Lira might remain under pressure in the near term, as the dollar continues its accent against global currencies, the weakened currency is very unlikely to represent a fundamental challenge to Turkey’s impressive economic success story.”

Turkey may actually come out of the currency volatility in emerging markets stronger thanks to its industrial output per capita and strong export performance, he said.

The lira had slumped to a record low of 4.92 per dollar last week, taking losses for the year to almost 25 percent, as investors worried that the economy was overheating after a raft of government stimulus measures. While Turkey's public debt to GDP is relatively low compared with other economies, corporate debt levels are approximately 30 percent of economic output and repaying those loans becomes more difficult when the lira is sliding.

The lira gained 2.7 percent to 4.58 per dollar on Monday as the central bank announced a simplification of its complex monetary policy strategy and oil prices and U.S. Treasury yields declined. Turkey imports nearly all of the oil it consumes.