Now that it is getting hit hard, it is time to start thinking about Turkey again. Turkish stocks and the Turkish lira have endured a lot of pain over the last month as emerging markets have sold off.
Multiple risks and volatility go with investing in this type of market, but I believe that over the long-term, Turkey will provide excellent returns.
The easiest way to invest in Turkey is through the Turkish Investment Fund (TKF - commentary - Cramer's Take), which is a fair proxy for the Turkish market. It is actively managed and carries a fairly hefty 1.58% expense ratio, but if Turkey does well over the long haul, I would expect the fund to also do well, high fees notwithstanding.
The fund is heavily tilted to financials (19.5%) and materials (20%). It yields 2%, which isn't that high for emerging markets, but Turkey has the potential for explosive growth. The biggest obstacle currently is the fund's large premium to its NAV, 14%. Some investors are militant about never paying a premium. I don't get too worked up about premiums of 5% or less, but 14% is a lot. A little patience might be rewarded with a better entry point, but the premium has been as much as 25% this year.
Mirroring the Market
The performance of the Turkish Investment Fund (tan line) has matched that of the Turkish stock market |
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| Source: BigCharts.com |
The long-term bull case for Turkey is that if it joins the European Union and adopts the euro, it would provide tremendous economic opportunities for its young (average age 28) and large (70 million) population. GDP grew more than 5% in 2005, and is expected to grow by more than 6% this year and the next, according to the OECD.
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