Turkey represents one of the most promising emerging market economies in the world, with gross domestic product (GDP) growth of 8.5% in 2011. International investors know the country best for its emerging market-like growth, but developed market-like stability, as a key player and burgeoning financial center in the Euro-Asian marketplace.
Turkey's Promising Economy
Turkey's economy is classified as both an emerging market and developed market, depending on the economist or governing body. Since the 1980s, the economy has grown to become the 15th largest in the world and a leading exporter of everything from agricultural products to consumer electronics, but the state still plays a major role in several key industries.
While the average graduate pay was just $10.02 per man-hour in 2010, the country had the fourth largest number of billionaires after New York City, Moscow and London. Istanbul is widely viewed among investors as a leading financial center in Europe, while the country's stock exchange hosts a number of large multinational companies.
Investing in Turkey with ETFs & ADRs
The easiest way for international investors to capitalize on this economic growth is through the use of exchange-traded funds (ETFs). With a diverse number of holdings, these securities offer instant diversification and can be easily purchased on U.S. stock exchanges.
The most popular Turkish ETF is the iShares MSCI Turkey Index Fund (NYSE: TUR), which holds nearly 100 different stocks with a total net asset value of over $600 million, as of November 2012. With a management fee of 0.59%, the fund is relatively cheap compared to many mutual funds, but is highly concentrated in financials (50.59%) and Turkiye Garanti Bankasi (13.59%).
A second option to consider is the Turkish Investment Fund Inc. (NYSE: TKF), which is a closed-end mutual fund focused on long-term capital appreciation through Turkish equities. The fund invests in a number of different industries, ranging from automobiles to household durables and is run by Morgan Stanley Investment Management Inc.
Benefits & Risks of Investing in Turkey
There is little doubt that Turkey represents one of the most promising emerging markets in the world. But there are many risks that international investors should consider before investing.
Benefits of investing in Turkey include:
- Rapidly Growing Emerging Market. Turkey had the 9th fastest growing economy in the world during 2011, with an 8.5% GDP growth rate; as a growing influence in Europe and Asia, the country could continue to see these strong growth rates.
- Relatively Safe Compared to Others. Turkey has a relatively safe economy relative to many other emerging market economies; the lower risk may lead to a greater risk to reward profile and greater risk-adjusted returns.
Risks of investing in Turkey include:
- Reliance on European Union. Turkey has a primarily export-driven economy that's heavily reliant on demand from the European Union; prolonged shortfalls in this demand could have a negative impact on the country's economy.
- Geopolitical Risks in Leadership. Turkey's leadership suffers from ideological struggles that have led to greater political risk in the region; changes in policies or political turmoil could have an adverse impact on the country's economic performance.
Key Points to Remember
- Turkey has both emerging market and developed market qualities - as well as a unique location between Europe and Asia - that make it a unique investment.
- The easiest ways to invest in Turkey are using the iShares MSCI Turkey Index Fund (NYSE: TUR) or the Turkish Investment Fund Inc. (NYSE: TKF) mutual fund.
- Investing in Turkey entails a number of different risks, including its export reliance on Europe and potential geopolitical risks in its leadership.