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Turkey: Continued Growth in 2013?

Turkey’s benchmark equity index is amongst the best performers of 2012

Alanna Petroff 20 December, 2012 | 3:49PM

Turkish equity markets have seen phenomenal growth in 2012, with the benchmark Istanbul Stock Exchange National 100 Index rising by 50% since the start of the year.

The best-performing funds of 2012 were all Turkey-centric, with the HSBC Global Investment Funds Turkey Equity fund shooting up by over 65% since the start of 2012. Other Turkey-focused funds include the UBAM Turkish Equity fund and the Charlemagne Magna Turkey fund. Both of these funds have returned more than 50% to investors since January 2012.

To find more Turkey-focused equity funds, click here.

This performance leaves investors wondering if they will see a repeat year of growth in 2013. But as the old adage says, past performance is no guarantee of future results. For example, Indonesian equities had a blockbuster year in 2011, but performance this year has been lacklustre.

Investors should tread carefully and complete their due diligence before jumping into any investment, particularly one that ties its fortunes to an individual country or sector. Conventional wisdom indicates that a well-diversified portfolio will be better equipped to navigate the ebbs and flows of varying market situations.

JP Morgan's New Turkey Fund

Looking ahead, JP Morgan fund manager Sonal Tanna says she is expecting further upside in Turkish equities over the long term. Tanna was recently named the lead manager of the new JP Morgan Turkey Equity fund, where she will focus on investing in a concentrated portfolio of 20 to 50 Turkish stocks that have long-term upside potential.

Turkey’s clearly had phenomenal performance this year

“Turkey’s clearly had phenomenal performance this year,” said Tanna. It would be unrealistic to expect the same kind of performance in 2013 that we saw in 2012, but we see absolute upside over the long-term in Turkey, she said.

Domestic growth and further monetary easing are two factors that will help support future growth in Turkey, said Tanna. She also notes that Turkey has a skilled, young labour force, which will help power the country’s economy forward.

“The investment case for Turkey rests on favourable demographics, geographic position, and macroeconomic normalisation,” she said.

In terms of promising sectors, “we are currently finding the most compelling investment ideas in industrial and real estate companies,” said Tanna.

Tanna’s Turkey fund originally started its life as the JP Morgan Europe Convergence Equity fund. It had been run by Oleg Biryulyov, with Tanna acting as the back-up manager. The fund has now been renamed and repositioned, which has resulted in Morningstar OBSR analysts putting the fund’s rating under review. It previously held a Bronze rating.

“Whilst Ms. Tanna has been covering Turkish equities for some time and co-manages a number of regional funds … this will be her first time as lead manager on a single-country fund, which presents a new set of challenges,” stated a Morningstar OBSR report. “In addition, although Turkey accounted for over a third of the Convergence Europe fund over the past few years, the opportunity set has now substantially changed. Morningstar OBSR will meet with the manager in the coming weeks to discuss the fund changes.”

Turkish ETFs

For those investors who are interested in accessing the Turkish market using exchange-traded funds (ETFs), there are three Turkey-focused equity ETFs available for sale on the London Stock Exchange: the HSBC MSCI Turkey ETF (HTRY), the iShares MSCI Turkey ETF (ITKY) and the UBS-ETF MSCI Turkey (UB36).

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.