Turkey is one of those emerging market countries that investors are never quite sure about and the lower oil prices are sparking investor interest again.
“It’s usually marked by two steps forward, one step back,” according to Randall Coleman, portfolio manager of the Forward Select EM Dividend Fund Sometimes, “and sometimes, it’s one step forward and two steps back.”
Right now, though, Turkey is on a positive path, and benefiting greatly from a couple of important dynamics, namely the sudden fall in global energy prices and the side effects of the sanctions on Russia.
“The fall in oil prices, which came very suddenly and fast, has taken everyone by surprise, and it’s an exogenous shock that has positively benefited countries that import oil like Turkey while negatively impacting exporters like Russia,” Coleman said.
Seventy percent of Turkey’s total energy bill is imported, so the 40% drop in oil prices is a real boon for the economy and will not only help in reducing its significant current account deficit, which has been a source of concern for investors, but also will really help with Turkey’s inflation problem.
The depreciation of the Turkish lira earlier this year sent inflation trending high and investors were not happy with the Central Bank’s approach of keeping interest rates low in order to stimulate the domestic economy.
The recent oil price fall bodes well for Turkey over the medium term, particularly considering the structural nature of lower energy prices that have yet to reach a bottom, said Phoenix Kalen, emerging markets strategist at Societe Generale in London. In addition to the boon of lower energy prices, which is helping to improve Turkey’s policy flexibility, the Central Bank of Turkey is working hard to re-establish their credibility with respect to the inflation-targeting mandate, Kalen said, addressing an issue that investors were concerned about as inflation had greatly increased with the depreciation of the Turkish lira some months ago.