Value Investors Talkin' Turkey

Dale Jackson writes in The Globe and Mail that international investors are keeping a close eye on Turkey with the country's secular government again being challenged. Islamic fundamentalism has been gaining in neighboring countries: Syria, Iraq and Iran. And now the Turks are in the midst of a heated campaign heading into a July 22 presidential election:

The main opposition party is hoping to unseat the Islamic-rooted AK Party with a vow to maintain the decades-old wedge between religion and politics. Modern Turkey is a delicate balancing act between the two forces, literally bridging Christian Europe and Muslim Asia.

Further down the article:

Value investor Mark Mobius is taking a wait-and-see position on his Turkish holdings. From his office in Singapore, he manages over $35-billion in an emerging markets portfolio on behalf of Franklin Templeton Investments. He's "overweight" Turkish equities now, meaning he's holding more Turkish stocks than are represented by the MSCI Emerging Markets benchmark.

"We believe there's a lot of money to be made in Turkey," he says, although he adds he will continue to take profits as value stocks reach their potential.

More:

Peter Cundill is another major value investor who has taken an interest in Turkey. While the family of Mackenzie Financial Cundill funds focuses mostly on more developed markets, the Cundill investment team recently launched an emerging markets fund.

London-based lead portfolio manager James Morton says the Turkish equity market is packed with companies still trading below their intrinsic values. "We are watching with extreme interest" he says. "There are some stunning values in Turkey."

The Mackenzie Cundill Emerging Markets Value fund is still in the portfolio-building stage, but some of the sectors where Mr. Morton is doing his bargain hunting include manufacturing, logistics and financials. Mr. Morton says there are no markets that compare with Turkey, and doesn't rule out a government that embraces Islam as well as a free market. "I just want competent politicians" he says.

Read the linked article for some individual stocks Mobius is holding.

I've never been heavily invested in emerging markets. But this is worth keeping an eye on.

Comments

[Amit Chokshi]

Turkey is good but the inflation risk can really impinge on a lot of the intrinsic value. TKC is a favorite of mine but another area you have to watch out for is ownership rules with some of the Turkish conglomerates. I personally like Sweden/Nordic stocks. If you buy TeliaSonera you get exposure to TKC as theyown a big stake in it as well as MegaFon, the 3rd largest Russian telecom (not public co yet).

[John]

Amit: Great suggestion and thanks for pointing it out to me and readers here. Also, your point about ownership rules is spot on and something everyone needs to remember when investing in the emerging markets (and many developed ones, too).

[David]

I can't remember if it was Mobius or another investor who I recently heard make the following point: you don't need a Western-style democracy in place for a country's stock market to do well.

I remember some Islamic countries were specifically cited as an example.

Just thought I'd throw that in given the article's opening emphasis on political outcomes.

[John]

David: Agreed that Western-style governments aren't needed for good stock market performance. The concerns are probably centered more on westerners investing (if they are allowed) in countries with governments such as those in Iran, Syria, etc.