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Turkey ETF Tastes Bitter Ahead of Thanksgiving: What's Next?

A Thanksgiving spread is dull until the Turkey makes its presence felt on the table. Apart from the bird, another Turkey has been hogging investors’ attention this Thanksgiving. Yes, we’re talking about the country called Turkey.

Let’s look at the investment odds surrounding this country right now and see why it’s not winning favor. This time, the crash in Turkish lira is acting as the key headwind to Turkey investments. iShares MSCI Turkey ETF TUR lost 7.7% on Nov 23 and is down 27.7% this year. However, iShares MSCI Turkey ETF added about 2.2% after market on Nov 23.

High Inflation & Crash in Lira

Inflation in Turkey is now roaming around 20% (well above the central bank’s mid-point target of 5%), making its local currency brutally devalued. This is happening amid massive rate cuts by the Turkish central bank. The Central Bank of Turkey cut its one-week repo auction rate by 100 bps to 15% during its November meeting, after a 200-bp cut in October and a 100-bp cut in September.

The Turkish lira has declined almost 11% in November. The monetary policy committee expects the fleeting effects of supply-side factors and other factors beyond monetary policy’s control on price increases to continue through the first half of 2022. In any case, global economies are grappling with high inflation due to COVID-19-led supply chain issues.

Turkey’s lira slumped to a record low of 13.44 to the dollar on Tuesday, a level  unacceptable and well past what was just last week thought to be the “psychological” barrier of 11 to the dollar, as indicated by a CNBC article.

The Turkish market specifically crashed and the currency nosedived after president Erdogan (who is a long-time proponent of easy money policy) reiterated his view that higher interest rates don’t lower inflation. He also vowed to fight for lower rates.

Investors fear the limited power of Turkey’s central bank, whose monetary policies are seen as being largely governed by Erdogan, the CNBC article noted. He has dismissed three central bank chiefs in about two years over policy differences, the article also pointed out.

Any Bright Spots?

World Bank Vice President for Europe and Central Asia Anna Bjerde recently praised the positive growth of Turkey’s economy during the pandemic in 2020 but also warned against higher inflation. The Turkish economy grew a record 21.7% year over year in the second quarter of 2021, following an upwardly revised 7.2% growth in the previous three-month period, as activity bounced back sharply from a sharp reduction caused by COVID-19 restrictions last year. The growth rebound in 2021 has been good in Turkey, as the region’s GDP growth is about 5% to 5.6% on average, World Bank Vice President for Europe and Central Asia said.

All in all, tensions persist in the country and it’s better not to get a taste of this ETF right now as it will take more time to get properly cooked. If you have a strong stomach for risks, then only one should go for bottom fishing and taste the Tukey ETF This Thanksgiving. Below we highlight the key details of the fund.

TUR in Focus

The iShares MSCI Turkey ETF provides a pure play exposure to 50 Turkish stocks. The fund is highly concentrated on its top 10 holdings which make up for nearly 60% of assets. Industrials dominates the fund’s returns with about 22.5% of the portfolio while financials, materials and consumer staples take double-digit exposure in the basket.

iShares MSCI Turkey ETF charges 59  bps in annual fees from investors and yields 3.72% annually. TUR has a Zacks ETF Rank #5 (Strong Sell) with a ‘High’ risk outlook.


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iShares MSCI Turkey ETF (TUR): ETF Research Reports
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