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Turkish Stocks Benefit From Liquidity Shield in Troubled Times

Tugce Ozsoy
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Turkish Stocks Benefit From Liquidity Shield in Troubled Times

(Bloomberg) -- Foreign investors may have dumped Turkish stocks this year, but they have probably been spared from a deeper sell-off by high liquidity levels that offer some comfort to traders, according to developing market specialists Tellimer.

Non-residents had sold $435 million of Istanbul equities this year as of Feb. 7, a swing from net purchases of $419 million in 2019, figures from the central bank show. Escalating tensions with Russia over Syria, along with an unsettled attitude among global investors toward riskier assets are likely to blame for the exit.

Relatively higher levels of liquidity, which mean investors can usually buy -- and sell -- stock quickly if they need to, makes the Turkish market a better option than regional alternatives and tempered the outflows, said Hasnain Malik, Tellimer’s Dubai-based head of equity strategy.

Kazakhstan, Romania, and Egypt would be better and cheaper investment destinations than Turkish equities, but supplies of available stock are much smaller, and the “more liquid alternatives to Turkey within the Gulf region do not look that compelling in a muted oil price and low-growth environment,” Malik said.

Constant geopolitical turmoil and the government’s market interventions to arrest the lira’s decline are prompting traders to increasingly see frontier-market traits in Turkey, rather than those of an emerging market. It’s a good thing, then, that the ample liquidity available on the Borsa Istanbul sets it apart, according to Malik.

“Turkey is still much, much more liquid than most frontier markets, but its fundamentals increasingly resemble those traditionally, and probably unfairly, associated with frontiers: currency volatility, poor policy, and political risk,” he said.

Government-backed lenders sold more than $4 billion of foreign currency last week and an additional $500 million in recent days, just as authorities tightened restrictions on foreign access to the currency. While the moves help support the lira, the interventions also risk distorting markets. Turkish equities are sensitive to moves in the currency because of corporate foreign-exchange shortfalls, which stood at $176 billion as of November, according to central bank figures.

“Turkey is full of great, cheap companies under the shadow of poor macroeconomic policy and high political risk; that makes the outlook highly dependent on global risk appetite,” Malik said. Turkish stocks trade at a 49% discount to their emerging-market peers, based on estimated earnings over the next year.

Read more here about the lira.

Here are some more of Malik’s views:

Kazakhstan, where political succession has been successfully managed, has good relations with the U.S., Russia, and valuations are attractiveRomania is inching toward a more market-friendly government and its stocks remain cheap despite last year’s rallyEgypt still offers value, given improving growth prospects as interest rates fall

To contact the reporter on this story: Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, ;Onur Ant at oant@bloomberg.net, John Viljoen, Jon Menon

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