There’s a Big Test Coming for Turkey’s New-Year Rally

Photographer: Kerem Uzel/AFP via Getty Images

After a dismal 2018, Turkish stocks are enjoying their strongest start to a new year since 2013 as investors scoop up battered shares amid easing concerns over political risks. Now comes the big test.

The main Turkish stock gauge has climbed almost 9 percent since the beginning of January, led by shares including Turkcell Iletisim Hizmetleri AS, Turkiye Petrol Rafinerileri AS, and Turkiye Garanti Bankasi AS. The gain so far this year is more than double that for shares from developing economies, a surprisingly strong performance for a market that has scared away foreign investors last year amid a roller-coaster of political events.

The Borsa Istanbul 100 Index now faces resistance at a big psychological threshold: 100,000 points. The benchmark hasn’t traded above the level since early October 2018. It tested it on Wednesday, and managed to close just above the line, at 100,141.04.

While assets from emerging markets in general are posting a recovery this year amid signs of easing trade tensions, investors looking at Turkish stocks are seeing a relatively calm geopolitical backdrop, combined with attractive valuation and a more stable currency.

Plus:
Turkish President Recep Tayyip Erdogan hasn’t been pressuring the central bank publicly, as seen at different times last year. The recent decision by policy makers to keep rates on hold also helps it to regain credibility.
While U.S. President Donald Trump’s abrupt decision to exit Syria stunned most U.S. allies, it was welcomed in Turkey and supported by Erdogan, who can now target Kurdish militias he considers terrorists.
Volatility with the Turkish lira has fallen drastically after a surge in the middle of 2018. And valuation for Turkish stocks, as measured by the estimated price-to-earnings in the next twelve months, is still near the lowest since 2009.

“It’ll be a year with good stock-picking opportunities, given the attractive valuations of high quality companies with a strong balance sheet,” said Emre Akcakmak, a portfolio adviser at East Capital in Dubai who helps manage $4 billion. “However, it is unlikely that Turkey will be a basket case, given the economic challenges the country will continue to face.”

The recent rally in the Borsa Istanbul 100 has pushed the gauge’s 14-day relative strength index exceeding 70 for the past four sessions to a level it hasn’t reached in over 12 months. An RSI reading of 70 or above signals that the index is in overbought territory, and its rally could start losing steam.