How to invest in Turkey – Best Turkish Stocks & ETFs

Executive summary – Invest in Turkey:

• Turkey is an emerging country with high growth potential, many Turkish stocks are (in my opinion) massively undervalued. 
• Below you will find a selection of Turkish stocks that are essential to the Turkish economy
• The Turkish stock exchange, currency risk when investing in Turkey and SWOT analysis of the Turkish stock market is also explained.
• ETFs can be a great alternative to profit from the Turkish opportunity if you don’t want to invest in single stocks.

Analysis of the Turkish stock market – should you invest in Turkey?

Investing in Turkish stocks is profitable if your focus is on long-term growth.

I don’t know if a ‘trigger’ is going to be used in Turkey to push the country into a more conflict, or if Turkey is stuck with low growth and a weaker currency, but this uncertainty is unlikely to change very soon. In the meantime, it is still a great time to buy Turkish stocks.

Turkey has many attractive characteristics as a country. It is an emerging country, rich in natural resources, has a young population, a long history, and has tremendous growth potential. With low sovereign debt, the Turkish government is making smart decisions to reduce the government budget deficit.

The deficit is actually decreasing in real terms, thanks to strong economic growth and low inflation. The ‘Turkish risk’ is currently very low. Currently, in 2017 the Turkish stock market trades at around 6 times earnings, and many of the most profitable companies are still undervalued.

The Turkish Stock Market – what do you need to know before entering?

The most important thing to know is that a basket of Turkish stocks is a superior way to invest in Turkey and is an investment you can continue to profit from even if the country enters a more conflict. Investing in a long-term basket of Turkish stocks has the potential to grow your portfolio significantly (probably more than double).

You can buy and sell at any time without any hassle. As long as you hold the stocks, you are invested in the Turkish economy and therefore protected against the political risk of investing in the country itself. With a large number of businesses in Turkey, you can be sure that there will always be a good amount of money in your account. With your initial investment, you will be a small investor and won’t be able to move the market, but over the long term, this will provide you with steady, consistent returns that will give you good exposure to the Turkish economy.

The recent political problems in Turkey are not unique to Turkey. This has been happening in different emerging countries such as Brazil and Russia. In the case of Turkey, however, it has the potential to be a huge opportunity.

It’s all about the currency.

Over the last few years, investors have been hugely negative on emerging markets. On one hand, it is a bit harsh to think that in this time of low inflation, no country should be growing at more than 6% a year. However, the Turkish stock market has gone undervalued relative to developed markets. In the global stock markets, emerging markets have declined, while developed markets have remained relatively stable.

In recent years, the performance of the Turkish stock market has been very encouraging. In comparison, the MSCI Emerging Markets Index has gained around 30% over the last year, which would mean an annualized return of more than 8%. This index looks much more expensive than the Turkish stock market.

Statistics about investing in Turkey

• According to the Presidency of the Investment Office of the Republic of Turkey, despite the bleak outlook for global FDI, Turkey has seen an annual increase of 14 percent of direct investment.
• According to preliminary data from the Turkish Ministry of Industry and Technology, between January and March 2019, Azerbaijan was the largest investor in Turkey, a first in the history of the country.
• This year, the TRYTOM = D3 currency has lost almost 40 percent against the dollar, driven by concerns about Erdogan’s growing economic influence and his repeated calls for lower interest rates despite high inflation.
• Turkey has a stable economic growth with an average annual real GDP (Gross Domestic Product) growth rate of 5.6 percent between 2002 and 2016. 
• According to the UNCTAD World Investment Report 2020, Foreign direct investment inflows declined significantly to USD 8,4 billion in 2019, edging down from USD 13 billion in 2018 (-35%). 

Strengths: young population and ongoing growth of the economy

The country’s economic advantages speak for investing in Turkish inventories. A look at the growth shows that the last few years have seen an average economic growth of 7.0 percent.
Economic growth can be presumed to remain above average. The very youthful Turkish society is the reason for this. While the average age is set at 47 in most European countries, it is 31 in Turkey. The demographic strength of Turkey should not be under-estimated. In this way, economic growth is supported by the workforce in Turkey. Higher salaries in China make it even more attractive to move production closer to the sales markets.
For trade, Turkey is also important. It offers effective trade routes, called the “bridge between Asia and Europe”. Moreover, the supply of raw materials from the Middle East goes through the country, which generates great income for Turkey.
Furthermore, in the adjacent Mediterranean Sea, there are still unused gas reserves that could be exploited. Thus, some geographical factors point to economic growth in Turkey.

Weaknesses: Currency risk and the government’s Islamization course

In the area of weaknesses it is worth mentioning the strong course of Islamization led by President Recep Tayyip Erdoğan. While Turkey, with the previous prime minister, has taken an important step towards modernisation, the country is now looking backwards. Economic relations between states are affected by this.
Erdoğan and Turkish central bank also had a problem. This affected the turkish lira ‘s volatility and caused it to collapse altogether. The currency risk can be seen as a major weakness on the Turkish stock market, as Turkish companies generate a large proportion of their turkish sales.

Opportunities: Emerging country with high potential

Turkey is one of the most potent emerging countries. A perfect example is the TOGG consortium. TOGG is not publicly traded. Yet, Turkcell, the Anadolu Group (WKN: 164178), and Zorlu Holding (WKN: 983112) each hold 19% of the TOGG consortium.

The company group’s aim is to develop an electric car under the brand TOGG. So far, Turkey has been mainly a production site for corporations from other countries, but now there is the know-how to tackle your own projects. As early as 2022, the first electric car is expected to hit the market. It is planned to start with a compact SUV.

A lot is happening here and new companies are likely to bring more promising Turkish stocks onto the market. Turkey benefits from a growing domestic market, similar to China, so that domestic businesses have good growth opportunities and can easily access foreign capital.

Risks: Political situation

For a flourishing economy, good connections to other countries are essential. Yet the present political situation seems to be the greatest threat to Turkey’s economic market.

Tensions between Turkey and the United States and Russia in the wake of the Syrian conflict are potentially extremely threatening. The authoritarian conduct of President Erdoğan is also seen as a danger by many. He has repeatedly attracted attention with central bank criticism, even threatening to intervene-and the financial markets don’t like to see that a lot of capital has been withdrawn at all.

In addition, the persistently low stock exchange prices suggest that major international investors still do not have great confidence in the Turkish market .

How to buy Turkish stocks from abroad

Only since 2013 has Turkey had one exchange. The Borsa Istanbul. The Istanbul Stock Exchange was listed under the abbreviation ‘ISE’ before the founding of Borsa Istanbul. Also, there was a Turkish exchange of derivatives and a gold exchange. All three exchanges have been merged together now.

It is often possible to find the leading Turkish index under the designation ‘ISE National 100’ or ‘ISE 100’ . The correct name, however, is “BIST 100,” since the name was adapted to the name of the stock exchange.

Financial stocks that have contributed to Turkey’s recovery over the past twenty years dominate the Turkish stock market. Particularly recommended is the up-and-coming industrial sector which includes Koc Holding and Ülker.
Without further problems, Turkish stocks can be traded on European stock exchanges. Usually, this is much cheaper than buying directly on the Istanbul Turkish stock exchange.

The exchange rate for Turkish lira (TRY)

Turkish lira exchange rates are significant in relation to Turkish stock market investments. In particular, the Turkish national currency has suffered from partially galloping inflation in recent years. Compared to 2020, a look at 2015 demonstrates that the exchange rate has fallen by half. If you received three liras per euro in 2015, by 2020 it will be 6.50 liras for each euro.

When you buy Turkish stocks, it’s not generally an issue that the lira is weaker than the euro. Only substantial break-ins are dangerous. Because: Turkish stocks are traded in Lira and are numbered. Turkish stocks are also worth less should the rate of the Turkish currency collapse dramatically.

If you live in UK or Europe, you can get exposure and buy Turkish Lira using the bank App Revolut. Beyond being able to buy or sell TRY, you can also access the following currencies: AED, AUD, BGN, CAD, CHF, CZK, DKK, EUR, GBP, HKD, HRK, HUF, ILS, ISK, JPY, MAD, MXN, NOK, NZD, PLN, QAR, RON, RSD, RUB, SAR, SEK, SGD, THB, TRY, USD, ZAR.

Consider this risk before making the decision to buy Turkish inventories. Shares are company shares and are not devalued if a local currency collapses, but it can take some time to re-establish a favorable ratio for German investors, depending on the case.

Best ETFs to invest in Turkey

When you want to invest in the stock market there, you don’t have to buy Turkish stocks directly. A look at Turkish ETFs is an alternative. You can use a broad market index with Exchange Traded Funds and thus invest optimally.

iShares MSCI Turkey UCITS ETF – A Turkish Specific ETF

• ISIN IE00B1FZS574
• Distributing ETF
• USD base currency
• Irish domicile
• 15 largest companies of the ISE 100
• A high expense ratio of 0.74%

This ETF fell sharply in 2018, as did the entire Turkish stock market. The recovery began in 2019 and there are no unlikely to be further increases. The advantage is the possibility of one single investment being able to rely on the largest companies in Turkey. For savings plans, the ETF is also eligible.

HSBC Emerging Markets ETF – Invest in Turkey via an Emerging Markets ETFs

• ISIN: IE00B5SSQT16
• Broad emerging markets ETF
• This ETF only has a <1% exposure to Turkey
• > 40% exposure in China

This is an umbrella ETF integrating various leading indices that track performance in emerging countries. For example, the HSBC MSCI Emerging Markets UCITS ETF is useful for diversified investments in emerging markets. The ETF primarily covers stocks from China, Taiwan, Korea, and Brazil. Turkish stocks and Indian and South African papers have a smaller proportion. The great advantage of such an ETF is that investors in emerging markets can participate in the growth trend on a broad basis.

The HSBC MSCI Emerging Markets UCITS ETF is one of the cheapest of its kind with a 0.40 percent expense ratio and offers the advantages of a physically replicated ETF.

This normally means less deviation than would be the case with synthetic ETFs from the leading foreign indices.

In recent years, this ETF has done a little bit better than a fund that only bets on Turkish stocks. The average P / E ratio of 12 is worth mentioning that’s twice the Turkish stock market average. That suggests that there is even more upside potential for Turkish stocks.

3 Turkish stocks to to profit from Turkish growth

Turkcell – US9001112047

Turkcell is Turkey’s largest mobile operator. The enterprise was founded in 1994. The company now has more than 34 million customers, giving Turkcell more than 50% market share. The annual average turnover amounts to 3,873 billion euros.

The Turkcell share is one of the few Turkish shares traded in the form of an ADR. It is traded on the New York Stock Exchange. This security deposit is considered a quality feature on the world’s largest stock exchange and shows the international interest in the share.

Shares in Turkcell peaked ahead of the financial crisis in 2007. It has since been very volatile like all Turkish stocks, with some significant fluctuations within a year. Turkcell is an interesting Turkish share for 2020 because the profits of the company are right and Turkey has a quasi-monopoly. Turkcell is currently investing heavily in the 5 G expansion, which is one of the reasons why the dividend did not exist in 2019. This approach can, however, pay off very well in the long term.

Summary:

• Solid earnings over the years
• Secure market position in Turkey through quasi-monopoly
• Still tradable by 2020 at the discount price

Koc Holding – US49989A1097

Koc Holding is Turkey ‘s largest industrial firm and a true figurehead of the Mediterranean country. The Fortune Global 500 lists Koc Holding, making it one of the world’s most valuable companies. For example, Koc Holding is comparable with Siemens or General Electric, with Koc Holding enjoying a more favorable cost structure. Koc Holding manufactures a wide range of products in different segments, just like the other groups mentioned.

Koc Holding is the European automotive industry’s supplier. Koc Holding also holds a majority stake in Arcelik, the manufacturer behind well-known brands of electronics such as Grundig and Beko. Koc Holding derives additional revenue from an oil refinery that it and Shell operate together.

Koc Holding ‘s shareholder structure is also important. The majority of the shares still hold the Koc family. Family businesses are usually long-term-oriented; the same is true of Koc Holding. There is also the special status that the family enjoys in parts of Turkey. She is regarded as a representative of the modern bourgeoisie and a democratic Turkey of the West.

Investors are buying a Turkish share with shares of Koc Holding, which is valued very low. The absurdly low P / E ratio is due only to political uncertainties and currency risks and does not reflect Koc Holding ‘s sales strength.

Summary:

1. Broad industrial enterprise, with a favorable cost structure
2. Oil production as sales guarantee
3. Currently available fairly cheap

Ulker – TREULKR00015

Another recommendation if you want to buy Turkish stocks when looking for good investment opportunities is the food company Ülker. It was founded in 1944 and is one of the world’s ten largest confectionery manufacturers. Within Turkey, Ülker is absolutely dominant.

In recent years, there has been a noticeable rise in company acquisitions. Today , there are numerous companies in the Ülker Group such as Bolero and Chewy and United Biscuits as well as the Belgian choclatier Godiva.

In recent years, the expansion course has been financed by credit. That’s normal and really unproblematic, but it caused problems at Ülker, because the Turkish lira collapsed. Loans which were withdrawn in euros could not be repaid with Turkish income. Therefore, in 2018, Ülker had a slump in profit and canceled the dividend. A debt rescheduling was agreed with the help of Turkish banks and political backing. As a consequence, Ülker has again stabilized.

To date, Ülker has been a story of pure success on the Turkish stock exchange. Anyone who joined 10 years ago would have quadrupled their money by 2020 and that without taking the considerable dividends into account. 

In essence, as a food company, Ülker will not continue to grow this way forever, but there is still room for growth even in its home market. Ülker is also valued favorably with a P / E ratio of 8 and, as a food company, operates in a highly crisis-proof industry: people always buy chocolate. 

Summary: 

1. Defensive stock with the potential for an increase 
2. Because of the high-profit margin, a potentially attractive dividend 
3. High debt can pose a threat.

Frequently asked questions about investment in Turkey

How do I invest in Turkish Stocks from abroad?

Some large Turkish companies such as Koç Holding or Turkcell can be traded via Xetra. On the other hand, the range of Turkish shares offered on over-the-counter platforms is often very small.

How big is the political risk to the Turkish stock market?

According to data from the Polity IV project, Turkey is no longer considered a democracy as of 2014. That also harbors stock market risks.

Is investing in Turkish stocks worth it?

There are strengths and weaknesses in Turkish stocks. However, from the risk diversification point of view, it makes sense to have some stocks in the portfolio also from emerging countries such as Turkey.

What are Turkish stocks at the top?

The shares of big companies like Turkcell are especially suitable for beginners with little knowledge of the market. With an ETF on Turkish stocks, the spread is even higher.

Conclusion: Turkish stocks are attractive but also risky for investors

The Turkish stock market can not be denied as an area that brings both high opportunities and great risks – yet less risky than the African market for example. A look at the economic and political situation makes it clear that the flourishing economy may at any time turn in a different direction.

If you would still like to benefit from potentially significant value increases, it is recommended to purchase Turkish stocks. An alternative is looking at ETFs with an emphasis on emerging markets. You spread your capital here and simultaneously invest in the performance of a large number of businesses.