Turkish Stock Rout Has HSBC Seeing Positive Side to Slump


Turkish stocks may be March’s worst performers globally after their rapid descent this week, but HSBC Securities is keeping its positive view because of increasingly attractive valuations.

The stocks are “inexpensive enough to make one look for things that could go right, rather than things that could go wrong,” analysts including John Lomax and Cihan Saraoglu wrote in a report dated March 24. HSBC trimmed its overweight position on Turkish stocks on March 9, but said Wednesday it’s not cutting the weighting further.

Turkish markets were pummeled after President Recep Tayyip Erdogan’s weekend firing of central bank governor Naci Agbal, whose November appointment encouraged investor optimism of a return to more orthodox monetary policy. The benchmark Borsa Istanbul 100 Index has slumped more than 8% this week, dragging the price-to-estimated earnings multiple of its members to a record discount of 58% to emerging-market peers.

Turkish Stock Rout Has HSBC Seeing Positive Side to Slump

The Istanbul benchmark is the worst-performing index in the world this month in dollar terms among 92 markets tracked by Bloomberg, aside from a gauge of Turkey’s 30 largest stocks. But, HSBC says the March slump isn’t purely down to domestic factors, given surging U.S. bond yields that damped appetite for riskier assets, and the analysts expect the country’s stocks to benefit as these conditions improve.

The main Turkish index was 0.9% lower as of 3:18 p.m. in Istanbul.

The potential for more dovish monetary policy following the change in central bank leadership increases the chance of higher growth, and earnings could be stronger rather than weaker, resulting in even cheaper valuations, the HSBC analysts said.

HSBC selected grocery chain operator BIM, steelmaker Erdemir, conglomerates Koc Holding and Sabanci Holding, and lender Isbank as its five preferred Turkish stocks.

Turkey’s lira is also the worst-performing emerging-market currency this month, after weakening 7% against the dollar. That could be a positive for companies with a significant portion of their business exposed to foreign markets.

Members of the MSCI Turkey Investable Market Index of 49 stocks derive one-fifth of their revenue from outside the country, with eight of these companies sourcing less than than half of their revenue domestically, according to MSCI Economic Exposure data.

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