Hermes’ Greenberg goes overweight Turkey

Hermes’ Gary Greenberg has taken a counterintuitive move to go overweight Turkey amid its severe market and currency falls.

The manager of the group’s Global Emerging Markets fund said a combination of growing political unrest and the impact from the US Federal Reserve’s moves to reduce the amount of support it gives to the economy, known as tapering, had hit Turkey.

Anti-government protests began in Turkey last summer and have continued in the run-up to the elections which are due in August.

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Prime Minister Recep Tayyip Erdogan is expected to be victorious and claim what would be his fourth term but a groundswell of support for US-based cleric Fethullah Gulen has unsettled the political landscape and created fears of instability in the country as the polls approach.

“The combination of tapering and political unrest has hit the Turkish market hard, resulting in a 30 per cent drop in dollar terms from the peak in May 2013,” Mr Greenberg said.

“Turkey’s currency has lost more than 25 per cent since May 2013, when tapering was first mentioned. Six-month Turkish Libor has jumped from 5.1 per cent to 9.4 per cent over this period, and the economy duly slumped. Given these headwinds, the market has de-rated and is now looking cheap.”

Mr Greenberg said Turkey had achieved a “large devaluation” of its currency which had helped it re-establish competitiveness against the euro.

“Technological innovation would have been our preferred method, but it looks like the job has essentially been done for now,” Mr Greenberg said.

The manager added that because most of Turkey’s exports are to Europe, the country would also benefit from a continued economic recovery on the Continent.

Mr Greenberg acknowledged the political situation was “quite fluid and thus difficult to handicap” but he believed a political solution would be found and companies would be able to grow their profits.

“Europe’s recovery will help exports, China’s slowdown should ease pressure on commodity prices, and the growing global interest in energy extraction from shale can only help Turkey’s current account,” he said.

“This all means Turkey becomes an overweight position, on the assumption politics do not seriously derail the economy and the market’s valuation reverts to the mean.” Mr Greenberg said he owned propane gas distributor Aygaz, white goods company Arcelik and government-owned bank Halkbank.

Halkbank, which lost its chairman and 20 per cent of its market cap to a scandal recently, is perhaps the most contrarian of Mr Greenberg’s Turkish calls but the manager stated confidence in its potential returns.