Turkey Shooting (TUR): Opportunities and Pitfalls...

Turkey faces both opportunities and pitfalls in the new economic reality:

In our Weekend Edge, we initiated a case to be made for Turkey to emerge as a strong developing European economy (on a relative basis).

• External debt as % of GDP has declined to just over 37% since the 2001 crisis.
• Oil prices, a primary driver of the trade deficit, have declined dramatically (Turkey currently produces less than 9% of its daily oil consumption).
• The banking system there has shown relative resilience in the face of the credit crisis so far. Regulation is something they have already proactively managed.
• Skilled labor in Turkey is inexpensive and the labor force is both young and educated. This makes the country well situated geographically to capitalize on trade opportunities with more than just the EU (currently more than 50% of the market for Turkish exports).
• Although consumer inflation remains in low double digit territory, this represents a major decline from the nosebleed levels seen from 2001 to 2003, suggesting that domestic consumption may maintain its current levels in the near term.

There are clearly a number of major issues which face Turkey that could derail the bullish case: bureaucratic and regulatory hurdles which stymie foreign investment; significant security issues on its borders with Iraq, Iran, and Georgia; and a current account deficit that remains troublingly high.

With a stock market battered by the global selloff, Turkey is beginning to look attractive on both a quantitative and a relative value basis to other emerging markets. We will be keeping our eyes on Turkey, looking for data to indicate whether or not Turkish political and corporate leaders are making the right decisions to capture opportunities and avoid pitfalls in the new reality.

Andrew Barber
Director