Fabian Talks Turkey

03/18/2010 12:00 pm EST

Focus: ETFS

Doug Fabian

Editor, Successful ETF Investing, ETF Trader's Edge, Weekly ETF Report, and ETFU.com

Doug Fabian, editor of Making Money Alert, says Turkey has been hit by some political concerns, but the country’s economy is solid and its market should regain momentum.

Turkey is offering what could be an appetizing investment opportunity through the iShares MSCI Turkey Investable Market Index (NYSEArca: TUR). That exchange traded fund (ETF) gives investors exposure to a promising emerging market.

This ETF zoomed a jaw-dropping 98% in 2009 when the Turkish stock market was one of the world’s top performers. An interest rate cut to record lows by Turkey’s Central Bank last year probably fueled the gains. Unfortunately, the fund [has risen about 2% through March 17th].

TUR is a pure play on the Turkish stock market. With a population of 72 million people, Turkey is on the strategically important border between Europe and Asia. While it once was an economic basket case, Turkey has been rebounding during the last decade by reining in inflation. Turkey’s reward is that its economy grew [by] an average of nearly 6% between 2002 and 2008.

Unfortunately, the credit crunch in 2008 and 2009 hit the Turkish economy hard and caused it to shrink 13.8% in the first quarter of 2009 and by 5.8% for the full year. However, Turkey’s fiscal and monetary stimulus programs, combined with a healthy banking sector, helped cushion the blow.

Unlike other emerging markets in Europe, Turkey survived the financial downturn without relying on an emergency bailout package from external lenders. The country now is expected to grow 3.5% to 4% this year.

A further encouraging sign arose February 19th, when Standard & Poor’s raised its long-term foreign currency and local currency sovereign credit ratings to BB and BB+. Although such ratings are still below investment grade, this action should have been positive for the Turkish stock market.

However, news broke shortly thereafter that the Turkish government arrested 40 military officials due to an alleged coup plot in 2003. The unexpected development and concerns that it could snowball sent the country’s market and its currency, the lira, falling, [and] that sent the ETF plummeting. It simply shows that Turkey is a volatile market and investors must be ready to brave the plunges, while they also look to ride the surges.

Given Turkey’s resilience in the face of economic crisis, I think TUR is worthy of considering as an emerging market investment. Of course, TUR carries risk, so this ETF is not for the faint-hearted. If you are willing to take a risk, this ETF’s recent price dip could let you buy shares in the fund at a relatively discounted price.

(TUR closed Wednesday above $55—Editor.)

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