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While Greece slides, Turkey soars August 9, 2010

Posted by Yilan in Turkey, Yunanistan.
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Although much of the global investment community’s focus has lately been on Greece and its ongoing saga of high budget deficits, spending cuts and IMF/EU interventions, its immediate neighbor to the east (and historic enemy) Turkey is enjoying unprecedented economic growth and a buoyant financial future.

Turkey’s PM Erdogan addresses the audience during a meeting with his party officials at his ruling Justice and Development.

Turkey's PM Erdogan addresses the audience during a meeting with his party officials at his ruling Justice and Development.
Turkey’s PM Erdogan addresses the audience during a meeting with his party officials at his ruling Justice and Development.

To illustrate the stark contrast between the fiscal health of these countries consider that while Greece has signed on for a massive three-year, 110-billion euro loan from the IMF, Turkey has no need for any such lending, according to IMF managing director Dominique Kahn. (Turkey received about $55-billion in IMF loans from 1999-2008 to finance budget deficits).

No less a figure than renowned global investor Mark Mobius — the executive chairman of Templeton Asset Management – has endorsed Turkish stocks as a very attractive buy and a long-term story.

The Istanbul Stock Exchange’s benchmark ISE-100 index has climbed 14 percent in value year-to-date and is now at an all-time high, but Turkish equities remain cheap relative to their emerging-market peers. Over the past twelve months, the index is up by about 32 percent.

Turkey’s stocks are currently priced just under 11-times reported earnings, versus a figure of more than 15-times for the MSCI Emerging Markets Index.

Mobius, who has already invested about $1-billion in Turkey, seeks to buy even more of the country’s shares.

Turkey’s stellar performance has largely been driven by its banking sector, which instituted significant reforms in 2000 and gallantly weathered the economic crisis of 2008-2009. In addition, foreign investors are again pouring money into the country after pulling out during the recession.

“We remain optimistic about the long-term potential of the Turkish economy,” Mobius reportedly said.

Turkey has rebounded resoundingly from the 2009 recession – GDP soared 11.7 percent in the first quarter on a year-on-year basis – second only to China. Moreover, Turkey’s Central Bank has kept its benchmark interest rate at a record low of 7 percent, while inflation has decreased to a three-decade low.

Turkey’s economy probably grew at a 9 or 10 percent annual rate in the second quarter, according to Ziya Akkurt, chief executive officer of Akbank TAS, a premier Turkish bank.
By contrast, most Central and Eastern European economies are showing flat growth patterns. Moreover, the Turkish government has raised tax revenues and reduced its borrowing costs.

The Ankara government predicts that Turkey’s debt level will peak at about 49 percent of GDP this year, then edge down to 48 percent by 2012.

Indeed, Western ratings agencies Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have all applied upgrades to Turkish debt over the past half-year.

“Turkey is in the process of transforming itself into a very competitive and fast-growing economy, backed by manageable inflation, low interest rates and a stable government,” Mobius said.

Turkey faces some risks to economic growth, however.
For one thing, any further worsening of the credit squeeze on the periphery of Europe (Greece, Portugal, Spain) would likely hurt Turkey since it relies heavily on external financing.

Another risk is the country’s chronic political firestorms – from the violence of Kurdish separatists in the Southeast to the battle between secular modernists and Islamic fundamentalists, Turkish society seems awash in instability and volatility.
Still, Turkey has performed extraordinarily well despite these problems – and with the likely implementation of further structural reforms and a government proposal to impose a so-called ‘fiscal rule’ (designed to cut the budget deficit and debt ) Turkey’s economic future has never looked brighter

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