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Position: Long Turkey via the etf TUR


The Turkish stock market flashed a negative divergence versus many European indices over the last days and we couldn’t explain the WHY behind the move. Then, yesterday, we got the rest of the story with news of the arrest of dozens of high-ranking Turkish military figures in what has been an ongoing investigation of suspects alleged to have plotted a coup against the government in 2003. The market had priced this in!

Taking a step back for context, 2003 marked the election year of current Prime Minister Recep Tayyip Erdogan and his Justice and Development Party, and his expedient end to the army’s control over the National Security Council. The latter point is an important and complex one to understand regarding the role of Turkey’s military in political rule, and it has significant precedence since the new Turkish state was founded by Mustafa Kemal Atatuerk in 1923. In fact, the military has ousted four governments since 1960, with the alleged 2003 coup meant to overthrow Erdogan’s government.

Certainly the political issues and tensions between a historically secular military and Erdogan’s current Islam-rooted government are complex. We’ll be grinding out more research on Turkey in the coming weeks, but our bullish take on Turkey is born out of a few positive catalysts: 

(1.)  The Istanbul Stock Exchange’s (ISE 100) recent tumble allowed us to buy Turkey via the etf TUR at a discount with TAIL line support down at 42,392 (see chart below).

(2.)  There’s huge upside to this emerging market economy with an improving GDP trend (see chart below). Annual Q1 GDP at -14.7% was a bottom and now in the rear view; we see favorable comps in 2010, and the government expects the economy to expand 3.5% this year, while the IMF forecast the EU and US to grow 1% and 2.7%, respectively, this year.

(3.) Turkey avoided an international bailout during the global recession after reducing its public debt to 47% of GDP last year from 67% in 2003 (Bloomberg). 

On the TAIL (3 years or less), bullish catalysts include: (1.) EU entry and increased trade; (2.) its powerful army—Turkey has the second largest standing army in NATO after the US Armed Forces; and, (3.) geographic benefit and influence resulting from its location between Europe and Asia, including energy transit. We’ll be writing on these topics in the coming weeks. Stay tuned.

Matthew Hedrick

Why we bought Turkey (TUR) yesterday - t1

Why we bought Turkey (TUR) yesterday - t2

Why we bought Turkey (TUR) yesterday - t3