Goldman Turkey story updated to include sharp reversal in Goldman view from a year earlier.
NEW YORK (
(GS - Get Report)
has gone from bull to bear on Turkey as the investment bank's analysts elaborate upon their recent cautious outlook for emerging markets countries in light of increased hawkishness from the U.S. Federal Reserve.
A team of analysts led by Singapore-based Christopher Eoyang lowered their view on Turkey to "underweight" from "overweight," citing a relatively high current account deficit, combined with the fact that much foreign investment in the country is from portfolio inflows (i.e. passive holders of stocks and bonds) which can be exited easily. They also pointed to a domestic credit bubble and an economy that relies on domestic as opposed to foreign demand.
"During a period of easing financial conditions, this combination is less of a worry, but as core rates rise, we believe it should become harder to invest in this story," the analysts wrote. The team of analysts is separate from the New York and London-based Goldman economists
who argued last week that emerging markets' era of outperformance has come to an end
In addition to lowering its view on Turkey, Eoyang's team sees "significant headwinds" and "vulnerable valuations," in Brazil and South Africa, where they were already underweighted. By contrast, they see "heavy discounts" in Korea and Mexico, where they remain overweight due to "better exposure and manageable risk in portfolio flows." They also see "heavy discounts" in China and Russia, though they remain neutral on those countries. They are also neutral on India and Indonesia.
The Goldman view sounds like a fairly sharp reversal from this video posted in April 2012 on Goldman's website. In it, Ahmet Akarli, Co-Head of New Markets Economic Research in Goldman's Global Investment Research Division, says "if we are right about our GDP forecasts going into 2050, then it is conceivable that Turkey can become the second largest economy in Europe, excluding Russia."
Written by Dan Freed in New York