Iran Crisis Hands Turkey Stocks an Opening to Win Back Investors

(Bloomberg) -- Turkish stocks turned out to be this week’s surprise winners from the Middle East crisis. And there several reasons why Istanbul equities may make the most of their moment in the spotlight to hold on to foreign investors’ attention.

The Borsa Istanbul 100 Index surged 4.5% Thursday, its biggest jump since November 2015 and outperforming more than 90 other global equity benchmarks tracked by Bloomberg, reflecting relief as concerns over an escalation in tensions between the U.S. and Iran dissipated.

Investors may be taking a closer look at some other attractive factors too. A drop off in foreign interest has left the market with a high valuation discount relative to emerging market peers. In addition, Turkey’s status as an oil importer means a post-crisis drop in oil prices may become a positive catalyst. On top of that, some of the country’s largest non-state-owned banks have just announced upbeat guidance for 2020, spurring optimism among money managers this week.

The historically low levels of international ownership compounded Thursday’s rally, spurring sharp gains in the private banking sector, said Julian Rimmer, a trader at Investec Bank Plc in London. The Istanbul benchmark index trades at 6.5 times estimated earnings, compared with a multiple of 13.1 times for the MSCI Emerging Markets Index.

Volumes on the day were driven by the local brokerage unit of Credit Suisse Group AG and Turkish broker Yatirim Finansman, who were net buyers of 863 million liras ($147 million) of equities in total, according to data compiled by Bloomberg. The two institutions each made more than double the value of trades done by the third most active on the day. While not a global name, Yatirim Finansman is well known in Istanbul circles through its market-moving algorithmic dealings since 2016 that have caused it to be known by local traders as “the Dude.”

Read more on: Single Istanbul Brokerage Drives Dramatic Turkish Stock Gains

Here are some more views from traders and money managers on patterns during Turkish stocks’ “super Thursday,” and what could be next for the country’s equities:

Julian Rimmer, Investec:

• “The rally was to some extent widespread because of the perceived de-escalation in Middle East tensions, but the immediate catalysts for the Turkish out performance were the upbeat forecasts for 2020 from Garanti and Akbank. They were more sanguine than the market on growth, loans and return on equity.”
• “Given the extent of the institutional underweight in Turkey, the market could easily rise further in the short term before structural impediments reassert themselves.”

Can Oksun, head of institutional trading at Global Securities in Istanbul:

• “Aggressive foreign buying from a few brokers who are known to be serving some major algo accounts pushed the market higher, supported by improving risk appetite and possible short covering.”
• “Continuation of this rally largely depends on the mood abroad, but the rally may go on if the benchmark BIST 100 Index in dollar terms can establish a foothold above the key 20,000 points level.”

Anastasia Levashova, a fund manager at Blackfriars Asset Management in London:

• “No one is interested in a global war; gold and oil is going to go lower in the coming few weeks, so you need to buy assets that will benefit from that, which is Turkey.”
• The trajectory for the rally is “Hard to tell, but everything else is also not as cheap, so the move should be lower oil and gold, and higher Turkish assets.”

Toygun Onaran, head of equity research at Oyak Securities in Istanbul:

• “Turkish stocks once again became the sweetheart of investors, as they search for cheaper options benefiting most from the risk-on mood. Turkey’s five-year CDS retreated to 270 levels, the lowest seen since May 2018, on the back of improving macroeconomic dynamics, as well as de-escalating geopolitical risks. Keep in mind that Turkey has underperformed its EM peers by 37% in the last two years.”
• “Considering the strong earnings outlook in 2020, MSCI Turkey trades with about a 50% discount to MSCI EM, which is significantly higher than last five years average discount of 35%.”
• “Although there are some tail risks and headwinds ahead of us, we expect Turkish equities to reverse the last two years’ underperformance and narrow the return gap with its EM peers in 2020.”
• Oyak expects an increase of about 35% in net income for the companies under its coverage in 2020, as they benefit from improving domestic demand and declining financing costs.

To contact the reporter on this story: Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, ;Onur Ant at oant@bloomberg.net, John Viljoen, Jon Menon

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