The recent wave of anti-government protests in Turkey continues to gain steam showing as little sign of abating as the country’s prime minister, Recep Tayyip Erdogan, shows of backing down. Yet foreign investors for whom Turkey has been a favored investment destination for some time are not particularly perturbed by the demonstrations. Not for the time being, anyway.
“The protests have changed our view in the sense that we think the intermediate term will be more challenging for Turkey,” said David Ruff, lead manager of the Forward International Dividend Fund and Forward EM Select Dividend Fund, “and the recent set of events have reminded investors of the political intrigue in the country and the risk that that can present, so of course, the increased risk premium will make it more difficult for equities to continue on the same trajectory.”
However, the Forward Funds have a larger allocation to Turkey than their underlying indices, and for the time being, Ruff doesn’t believe any need to change that position. Many Turkish companies, he said, have a good track record of passing over cash earnings in the form of a dividend payment, and this makes them attractive investment opportunities. On a more general level, the economic weakness in peripheral Europe has helped Turkish companies a great deal in that “consumers have moved down the price point spectrum for various durable goods from refrigerators to cars,” and Turkey has also been the beneficiary of investment that were it not for Europe’s economic troubles and the political uncertainty in the Middle East, would have headed to those destinations instead.
The strength of the Turkish corporate sector has been extremely appealing to foreign investors, said Richard Segal, head of emerging markets strategy at Jefferies in London. Many conglomerates are very well run, they have begun to expand abroad and their performance has stood out relative to the performance of companies in their sectors in other European countries.
On the macro side, fiscal policy in Turkey has been very sound over the past decade and economic reforms, particularly on the micro side, have been quite compelling and enhanced Turkey’s appeal in international markets.
But this, Segal said, has contributed to giving investors a false sense of security that everything was fine in Turkey, not least because Erdogan’s Islamic party has been very pro-business.