The iShares MSCI Turkey Index (TUR) provides broad exposure to the Turkish economy via an ETF. There are approximately 90 holdings in the cap-weighted index, with Financials comprising over 50%. The average market cap is around $6 billion, so TUR falls in the Mid Cap category. Expenses are fairly low at 0.65%.
This investment thesis revolves around the strength of the Turkish banking system in comparison to its neighbors and other emerging economies. Turkey had its own financial crisis in 2001, which was caused by a growing trade deficit and a weak banking sector. The result was a massive consolidation, as the number of banks decreased from 80 to 50. This crisis resulted in a stricter regulatory framework and puts Turkey in a position to benefit from the current market environment. Turkish banks are the least-leveraged in Eastern Europe, with few toxic assets and a low amount of mortgage exposure.
The biggest position in the Turkey Index is Turkiye Garanti Bankasi at 15% of the index. This bank saw revenue growth of 49% and profit growth of 69% in 2009. They opened 46 new branches in Q4, and I expect this growth to continue.
Additionally, from a demographic standpoint, Turkey has a very young population which is cause for higher growth prospects.
Obviously, there are risks to this strategy. There is still a good deal of political instability in the region and the government is heavily involved in the economy. Additionally, inflation is near 10%, and the country’s credit is still below investment grade.
I would suggest holding TUR as no more than 5-10% of an investor’s overall portfolio as this is meant to be used as a compliment to other International Equity holdings.
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