‘Why we won’t invest in Turkey’

In this update from Edinburgh and London-based Aubrey Capital Management, Mark Martyrossian explains why its global emerging markets team won’t invest in Turkey.

Bloomberg reported this week that financial markets are signalling more pain is to come in Turkey’s financial markets as long-time leader President Recep Tayyip Erdogan seeks to secure the re-election that narrowly eluded him almost two weeks ago.

Bets have risen for an eventual decline in the nation’s tightly managed currency as money managers prepare for Erdogan to face rival Kemal Kilicdaroglu in Sunday’s presidential run-off. Stocks and overseas bonds have also slumped.

Mark Martyrossian, Director at Aubrey Capital Management, has strong views he’d like to share with you on why the firm won’t invest. So, I’ve included insights from Mark below. Please feel free to use them, and if you have any questions or wish to speak to Aubrey, just let me know.

Mark Martyrossian, Director at Aubrey Capital Management, commented,

“Emerging Markets are alive with elections just now. Hooray for democracy!!

“We are often questioned on what we don’t own (Russia, Evergrande, Adani, Saudi Arabia) – more so than on what we do own.

“Turkey falls into the former category. The reason is quite simple: although there are several consumer names on our Watch List and a couple on our Focus List, none have made it into the portfolio for a number of years. The reasons are simple: (i) there have been more compelling stocks elsewhere and (ii) the macro situation in the country has provided sturdy headwinds and political risk. As you know, over the last 10 years the Turkish Lire has gone from 1.85 to the USD to 19.76. Quite a challenge for even the best run company. Even more so for a USD based investor.

“Little wonder that the stock market over the last decade or so has been lacklustre. It bucked this trend last year however, appreciating by over 137%. Improving fundamentals? Not a bit of it. Rather, beleaguered local investors trying to find a store of value with inflation raging at over 80%. Desperation or what?

“Clearly with the macro situation deteriorating, the prospect for the end of President Erdogan’s 20 years in power has been seen as a positive. But betting on a binary political outcome is always a dangerous game. Despite opposition parties banding together behind Kemal Kilicdaroglu and some encouraging showings in the polls, Erdogan has a decent lead even if he did not manage to get over the 50% line that would have given him an outright victory. It seems he is the favourite in the run-off election to be held on this Sunday 28th May.
 
Whatever the outcome, it appears to us that there is better value elsewhere…”