Money Managers Turn to Turkish Exporters After Surge in Banks

(Bloomberg) -- After a bumper run for Turkey’s banking stocks this year, some money managers are betting that industries outside the financial sector will make bigger gains.

Germany’s Union Investment Privatfonds GmbH has shifted its position in Turkish banks toward exporters this month, while New York-based Pzena Investment Management Inc. has been adding to holdings in the country’s stocks through non-financial equities.

The move comes after a 25% rally for Turkish banks this year because of their low valuations at a time of renewed risk appetite, leading the country’s benchmark to its second bull market of 2019. But the elevated levels came in the face of headwinds including a slowing economy, the prospect of U.S. sanctions and concerns over asset quality deterioration in the nation’s lenders.

Frankfurt-based Union Investment cut its exposure to banks “because we had good profit on the position,” and reallocated money toward underperforming exporters, fund manager Ekaterina Iliouchenko said. Also, non-financials like glass manufacturer Sisecam, Turkish Airlines and steel maker Erdemir are “looking more attractive,” she added.

Pzena added “a bit” to its Turkish holdings in the last quarter, also with a focus on exporters, portfolio manager Allison Fisch said by phone. The sector been helped by 7.2% depreciation in the lira this year, the second-worst performing emerging-market currency.

“We have been looking for ways to increase our exposure to the country outside the financial sectors,” Fisch said. “We want to take advantage of the disparity compared to non-Turkish peers.”

On Thursday Turkey’s central bank delivered its biggest rate reduction in at least 17 years. The decision increases the vulnerability of the lira and banks, which are sensitive to a weakness in the currency. Still, BGC Partners Securities’ banking analyst Cagdas Dogan said this may not be a big problem for lenders as long as interest rates are cut in a way that “doesn’t create too much pressure on the lira.”

Given banks’ outperformance this year, it’s “no surprise for the money managers to shift their positions in the Turkish equity market to non-banks, especially in light of a good trigger,” said Toygun Onaran, head of equity research at Oyak Securities. That catalyst may be second-quarter earnings.

Oyak Securities expects lenders’ profits in the period to be 39% lower than last year, mainly due to higher swap costs, a lower contribution from index-linked bonds and a lack of reversals in provisions, Onaran said. That compares with an estimated 4% year-on-year increase in profit for sectors excluding lenders.

--With assistance from Asli Kandemir.

To contact the reporters on this story: Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net;Áine Quinn in Moscow at aquinn38@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Jon Menon

©2019 Bloomberg L.P.