Deutsche Bank’s DWS Sees Scope for More Turkish Stock Gains


Turkish stocks may have set new records this year, but valuations don’t capture their full potential and there is scope for further strong gains, according to Deutsche Bank AG’s DWS Group.

Turkey’s pivot to investor-friendly monetary policy since November and a broader appetite for risk assets prompted DWS, which oversees about 793 billion euros ($960 billion), to “finally grow optimistic” on Istanbul equities, fund manager Sebastian Kahlfeld said in an interview.

“The big move hasn’t happened,” he said, even after Turkish stocks climbed 30% since the economic shake-up three months ago. The 29 million-euro DWS Tuerkei fund is up 6.5% this year, beating 83% of peers, according to data compiled by Bloomberg.

Deutsche Bank’s DWS Sees Scope for More Turkish Stock Gains

Turkish banks, which trade at a discount of more than 50% to their emerging-market peers, look particularly attractive to Kahlfeld. He expects increased earnings in the sector in 2021 and said investors have underplayed the resumption of dividends by lenders.

The banking regulator in January permitted lenders to pay as much as 10% of 2020 net income as dividends, ending a two-year freeze. The industry body said its members will cautiously restart distributions to shareholders, while guarding capital-adequacy ratios.

‘Completely Ignored’

This development seems to have been “completely ignored by the market,” Kahlfeld said. The banks could deliver a 2% dividend yield in a weak year, potentially rising to 5% as profitability improves and curbs on payouts ease, he said. The estimated dividend yield for members of MSCI Inc.’s emerging-market banks index is 3.9%.

“This is a totally new story about Turkish bank stocks, that they could become dividend plays in addition to the natural growth which they still have ahead of them,” said Kahlfeld, who has about 16 years of experience handling Istanbul equities.

As of the end of last year, financials were the biggest sector in the fund, with 32% exposure, and Turkiye Garanti Bankasi and Akbank T.A.S. were among its top holdings.

The departure of President Recep Tayyip Erdogan’s son-in-law, Berat Albayrak, as treasury and finance minister, and the ouster of the central bank chief three months ago spurred a rally in Turkish assets as investors welcomed new management of the economy. But some foreign institutional investors won’t come back easily as the “Turkish equity market has burnt quite a bit of its reputation” in past years by not living up to expectations, Kahlfeld said.

‘Dark Clouds’

Much of the rally over the past year has been driven by local retail investors. While foreigners have purchased $1.3 billion of Istanbul stocks since November, 12-month rolling figures still show outflows of $4.2 billion.

Recent discussion of a new constitution and occasional calls for rate cuts are “like unknown dark clouds” for investors, but persistence with orthodox policies will help rekindle interest among foreigners, he said.

“It is a lot of whens and ifs, but there’s quite a chance for Turkish equities to have a good year.”

©2021 Bloomberg L.P.

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