Emerging Markets, Funds / ETFs, Stocks

5 Reasons Why Turkey Should Outperform Global Emerging Markets: Relative Analysis Insight

Source: http://wisconsin2011turkey.files.wordpress.com/2011/02/ise_1.jpg

Turkey’s stock market, one of the world’s top performers this year, may be heading into a downturn, several indicators followed by technical analysts show, Bloomberg reported on Thursday, March 24.

The news agency suggests that the benchmark Borsa Istanbul 100 Index is slowing down after its best eight-week run since mid-2014.

“The main driver behind the rally in the past weeks was the positive sentiment globally toward emerging markets, (…)

Factors that fueled higher appetite for risk are now fading, coupled with investors’ focus intensifying on domestic issues including increased security risks.”

said Gulsen Ayaz, a director of institutional equity sales at Deniz Yatirim Menkul Kiymetler in Istanbul.

The benchmark’s moving average convergence divergence lines suggest the rally is losing momentum.

As per Bloomberg’s commentary presented above, things don’t look great but let’s keep in mind this analysis is based on an absolute basis. The technical investment story of Turkey looks much brighter when you apply a relative approach.

The truth is that short-term the Turkish stock market is more correlated with global emerging markets (EM’s). Currently, the positive investment sentiment is fading away not only in Turkey but also globally is affecting the other emerging and developed market exchanges. The stock markets recently have been driven predominantly by the collapsing oil prices and global central banks introducing unconventional tools like quantitative easing variations including the latest negative interest rates or still being contemplated so called ‘helicopter money’.

In ETFalpha view, investors should look at Turkey from a slightly different perspective. ETFalpha follow and analyze pair trades expressed as ratios and believe it could be a good moment to go long Turkey ($TUR) and short global emerging markets ($EEM). Below you can find the reasons supporting the trade and referring to the $TUR vs. $EEM ratio. Let’s keep in mind, when the ratio goes up it means that Turkey outperforms the global EM and when the ratio goes down it means that Turkey underperforms the global EM.

THE REASONS referring to the $TUR vs. $EEM ratio analysis

1. trading above its 200 days moving average;

2. positive trend, according to the True Strength Index (TSI);

3. still positive momentum, according to the TSI;

4. more potential upside (current ratio level @ 1.27) relative to the support level @ 1.10;

5. and finally the last reason is more based on a fundamental basis. Turkey as a net energy importer, short-term should benefit from the current oil prices level which look to be positioned to resume their negative trend which should turbo-charge the Turkish stock market in relation to global EM.

In September last year, ETFalpha presented its exclusive insight into the iShares MSCI Turkey ETF, the $TUR. The report covers the following ares:

– introduction;

– Turkey economy – fundamental insight;

– index/ETF construction;

– technical charts;

– fees;

– alternatives.

And what is your view on Turkey? If you have any thoughts, please feel free to share them below in the comments section.

Important Information Related to this Article

Please familiarize yourself with our DISCLAIMERS every time you engage the site: they’re updated constantly without notice. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product. ETFalpha did not own any shares of the mentioned ETFs at the moment of writing this article.

About ETFalpha

Chief ETF Strategist & Co-Founder at EMerging Equity


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