More To Come From Turkey's Stock Rally, Says HSBC Global Asset Management

Max Skjönsberg

23 August 2012

The Turkish equity market has gained over 30 per cent in dollar terms so far this year, but the country has not run out of steam yet, according to HSBC Global Asset Management.

While there may be a short-term correction, the UK firm argues that Turkey will continue to emerge as a regional economic power over the medium and long term.

Ercan Güner, manager of the $172 million HSBC GIF Turkey Equity Fund, says the Turkish economy has remained resilient to the global economic downturns of recent years, benefiting from low levels of public and household debt, favourable demographics and a solid and profitable banking industry.

After having grown by 9 per cent in 2010 and 8.5 per cent in 2011, Turkey's economy is forecast to slow to 3.6 per cent this year. This would represent a soft landing rather than a return to the “boom and bust” periods that the Turkish economy experienced in the 1990s, HSBC says.

Although Europe is a major export destination, the asset manager argues that the country remains somewhat insulated from the crisis of the continent. "Turkey managed to increase its export performance by gaining market share across EU markets where demand for cheaper quality products has increased," the firm says.

The asset manager also points to stronger political and economic ties between Turkey and countries in the Middle East and North Africa.

The macro picture in the country is also starting to brighten up, with the current account deficit coming down after reaching 10 per cent of GDP last year. Inflation has also dropped to 9.1 per cent from double-digits in 2011. According to Turkey's central bank, inflation will drop further to 6.7 per cent by the end of the year.

“Although the large current account deficit constitutes one of the main risks for the Turkish economy, we remain encouraged by the government’s recently-introduced incentive scheme to tackle the structural and long standing current account deficit problem over the long term and also by the Central Bank of Turkey's flexible monetary policy over the short term,” said Güner.