Strategy Note / Turkey

Turkey Strategy: Between a rock and a hard place

  • Will Turkey’s successful record against Covid bring a V-shaped recovery?
  • Our key 2020 theme: Companies heavily punished by the weak lira with specific stories that create cash flow
  • Risks: High inflation, collapse in tourism revenues, foreign investors' lack of appetite for lira-denominated govt debt
Turkey Strategy: Between a rock and a hard place

The unprecedented social and economic challenges brought about by Covid-19 have required extraordinary measures on both the fiscal and monetary fronts to support economic activity and prepare the ground for recovery. These measures have brought unforeseen monetary easing, with lower interest rates and increasing credit availability, which has caused over-heating in the economy – the Current Account has swung from a surplus in 2019 to a forecast 4.2% deficit/GDP in 2020, despite lower energy prices. 

Turkey once again finds itself with a weakening currency as the loose monetary policy and state intervention to defend the currency has failed, which we see as the major risk for the economy and asset prices.  The result has been a record US$12bn outflow from bonds and equities in 2020 so far, as investors believe Turkey might be in for a balance of payments shock. 

2020 has become an interesting year so far in terms of equity performance, as the blue chip BIST 30-index has underperformed the broader BIST-100 by 7% year-to-date. Banks, conglomerates and commodity names have all been laggards, while food retailers and telecoms have been the main outperformers. 

Local investors have become a  more dominant force in 2020, absorbing the US$4bn sale by foreign investors in 1H20, as a lack of meaningful returns in historically preferred interest-linked assets has made equities popular. 

The market is now trading at 8.5x 2020 P/E (Ata coverage), at a 42% discount to EM peers vs. a 37% 5-year average discount. Our key theme for Turkish equities in 2020 will be for companies that have been heavily punished from weak TL and with specific stories that will help them get through the “new normal” of the pandemic period by being able to create cash flow.


  • At 8.5x 2020 P/E (7.5x Bloom. Cons.), the market is at a 42% discount vs. MSCI EM compared with a 5-year discount of  37%

  • Turkey’s strong manufacturing base will help to gain some market share in different sectors in post-Covid-19 global trade dynamics 

  • Any return of appetite by foreign investors could give a strong boost to equities due to their underweight positioning and Turkey’s already low weight in MSCI EM


  • High inflation compared with EM peers continues to be the Achilles’ heel of Turkey’s macro; returning to single digits could take time

  • A collapse in tourism revenues and lack of international funding is once again pushing the CA deficit to high levels that are currently being funded by CBT reserves, which could lead to further weakening of TL

  • Foreign investors' lack of appetite for TL-denominated government debt will limit the banking system’s ability to finance both loan growth and public spending going forward, hindering economic growth potential

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