I’m a big believer that investing in overvalued Canadian or U.S. stock markets will not go very well over the next few years. Instead, I urge investors to check out other options. First I took a look at investing in Poland. Today’s post will be about Turkey, and in a couple weeks we’ll explore investing in Russia.
Ah, Turkey. The country that for whatever reason named itself after a delicious bird. I approve of this name. China named themselves after dishes and I’m pretty sure Costa Rica is named after a sex act, so in comparison, Turkey isn’t so bad.
Turkey has been making the news because of an attempted coup d’etat, capturing the world’s attention for all of 20 minutes until it became obvious President Erdogan would escape unharmed. We then turned our collective attention back to things that matter, like the latest episode of The Bachelor.
Immediately after the coup, Erdogan declared a state of emergency. He used it as an excuse to fire a bunch of secular judges, teachers, and whoever else opposed his move towards a more Muslim-friendly country.
Erdogan told the world a story of how he narrowly escaped capture, leaving a hotel just moments before an elite commando force showed up. Numerous bystanders have disputed the story, pointing out he actually left hours before. It doesn’t really matter which story is the truth; common Turks believe Erdogan’s version and that’s all that matters.
In fact, there’s mounting evidence the whole coup itself was staged, an elaborate lie just to give the leader a chance to further consolidate his powers. Hitler approves of this plan.
Turkey has other problems too. It’s regularly voted as one of the worst nations on the planet in which to do business. No matter how hard it tries, it’s just not considered white enough to make it into the European Union (although it does have a free trade agreement with the EU). It’s located near both Russia and Syria. And crazy Isis supporters regularly blow up small parts of it.
Turkey has a lot going for it too, like a young population, GDP growth of more than double us here in North America, a low-cost labor force which is attracting European manufacturers, and most importantly for us today, one of the world’s lowest CAPE ratios. Turkey has a CAPE ratio of 9, which means investing in Turkey is expected to earn 9.6% annually for the next decade. North American returns are expected to be flat at best.
So how should you invest in Turkey? Here are a few ideas, starting with individual companies and then working our way to ETFs.
Adese is one of Turkey’s largest grocery store chains. It has a number of different classes of shares and I analyzed it using Google Translate, but as far as I can tell it trades at about 70% of book value and less than six times earnings.
Turkcell, which I’m assuming is the largest provider of phone, TV, wireless, and internet, trades at less than 10 times earnings, but it is encumbered by a lot of debt.
Then there’s Denizbank, which trades at eight times earnings and is controlled by a Russian bank. It trades for about 90% of book value.
And so on. If you can read Turkish, Istanbul is awash in cheap stocks.
The obvious choice for investors looking for exposure to the former Ottoman Empire is through an ETF. The biggest is the iShares MSCI Turkey ETF (NYSE:TUR).
This ETF has exposure to 70 Turkish companies. 45% of assets are in financials, 13% are in consumer staples, 12% are in industrials, and so on. It has $364 million in assets, 9.5 million shares outstanding, and 190,930 shares in daily volume. The management fee comes to 0.62%.
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One of the reasons why Turkey is so cheap is because it has gotten hammered by other markets over the last five years. $10,000 put into the ETF five years ago would have actually lost money, even after collecting dividends. Hell, even if you had invested in the fund when it was first introduced in 2008, you’d still be down.
There’s also a fund that invests in Turkey, Russia, and other Central European stocks. It’s ran by Deutsche Bank with 54% of assets in Russia, 23% in Turkey, 16% in Poland, and a small smattering in other countries. It has a high management fee of 1.37%, but investors can take comfort in knowing it trades at about 15% under the value of the underlying stocks held. It’s common for closed-end funds to trade at a discount, but not that large of one. It trades under the ticker symbol CEE on the NYSE.
Wrapping it up
Saying Turkey has some issues is like saying Jack the Ripper could use a little counseling. There’s definitely a reason why the country has such a cheap stock market. You have to be brave to invest in Turkey.
I firmly believe the best returns are generated to investors who go where the rest of the world doesn’t want to be. This might be in trashy small-cap stocks, or in bigger companies everyone else has written off as dead. Turkey certainly qualifies as an unwanted part of the market. Perhaps the country is waiting to break out after years of underperformance.