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Opening the Global Mailbag

Kurapka responds to questions on shares of foreign firms trading on the Big Board, and exchange-traded funds.

Into the global portfolio mailbag:

Murat Uzman

asks about the shares of foreign firms traded on the

New York Stock Exchange

. "It came to my attention that the Turkish firm


(the wireless communication leader in Turkey) will be the first Turkish firm to be traded on NYSE. I wonder if a

Turkish firm is traded on NYSE, is its stock price in any way dependent on the price in the

Istanbul Stock Exchange

? I consider ISE rather volatile and the index is quite dependent on the political news, etc."

It's an interesting question and an important one for investors looking to invest in companies headquartered outside the U.S. but with securities traded here. Turkcell's initial public offering is scheduled for July 11 with shares traded on the Istanbul Stock Exchange. The firm will also offer American depositary receipts on the NYSE. With ADRs, investors don't buy shares of the company itself, but receipts for those shares deposited here. Thus, the ADRs can trade at a premium or discount relative to the value of the share price in the home market, although movements of the two do usually parallel one another. ADRs were created to allow investors the opportunity to invest in foreign companies in this country, while minimizing the risk somewhat.

However, the risk is not eliminated completely by any measure. One of the factors affecting Turkcell's price certainly will be economic and political conditions in Turkey and investor sentiment about those conditions. The good news is that the outlook for Turkey for the next few years appears pretty good right now, as it pursues reforms necessary for its entry into the

European Monetary Union

. The volatility in the ISE can be partly explained by a relative paucity of stocks, something that further offerings like Turkcell's, should they occur, will help to alleviate.

After the IPO, Turkcell and

Sabanci Holdings

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will be the only Turkish companies listed in the U.S. Investors can also play the Turkish market through the


Turkish Investment Fund


. It has declined 14% since the beginning of the year, after climbing a rousing 245% last fall to mid- January of this year. In addition,

Barclays Global Investor

is planning to release a Turkish

iShare MSCI

, an exchange-traded fund tracking

Morgan Stanley Capital International's

index for the country.


Danny J. Brouillard

is similarly interested in the distinctions between closed-end funds, which are

actively managed mutual funds with shares that trade like stocks, and exchange-traded funds, which are fixed baskets of shares that also trade like stocks. "I believe the growth in ETFs such as iShares will result in a shrinkage of the premium and/or in an increase of the discount applicable to the comparable closed-end fund," Brouillard writes. He says the Indonesia iShare, to be launched by

Barclays Global Investors

later this year, will put pressure on the existing Indonesia closed-end fund


, which trades at a significant

premium. "My reasoning is that the premium on the Indonesia CEF reflects the restricted number of investment options available to foreign investors. Once the ETF comes onto the market and it is subject to lesser fees, I expect investors will shift their money to the ETF resulting in a loss of premium for the CEF. Do you concur?"

I agree with your conclusion, but disagree with one of your points. As I recently

wrote, I think the premium (which is now at 38%, meaning the value of the shares being traded is more than a third higher then the net asset value of the fund) reflects a belief among investors that the country is due for a rebound, a sentiment not yet reflected in the fund's net asset value.

That quibble aside, I agree that iShares, with lower fees and other features, are in many ways more attractive then closed-end funds. (See

this story for a longer discussion on the subject.) However, there are still many countries not covered by iShares, but which do sport closed-end funds. There are 80 single-country closed-end funds; by the end of this year there will be 28 single-country ETFs. And the discounts of closed-end funds can present interesting buying opportunities, since those discounts often don't last long.

For what it's worth, why invest in Indonesia anyway? The jury is still out on whether the country has turned the corner, it seems to me. And there are other intriguing emerging markets out there. Like Turkey, for example.

David Kurapka's Global Portfolio column appears Wednesdays and Fridays on TSC. In keeping with TSC's editorial policy, he does not own shares in any companies or mutual funds mentioned in this column. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at