Discounts on Turkish stocks show rally has legs, GAM’s Love says



Turkish stocks could still have another 10 percent to gain, despite a rally so far this year that has propelled them to a place at the top of global indexes.
A combination of depressed valuations, central-bank efforts to support a declining currency and improved sentiment toward riskier assets has driven the benchmark Borsa Istanbul 100 Index 12 percent higher this year, better than all but five of the 95 global indexes tracked by Bloomberg. Even after the loss of Turkey’s only investment-grade credit rating, money manager Tim Love sees further upside.
“Turkish stocks require a certain level of discount to their emerging-market peers at about 10-20 percent,” said London-based Love, who works at the UK unit of GAM Holding AG, which oversees about $113 billion in assets. At current valuations, “Turkish stocks can rise a further 10 percent easily,” he said Tuesday by e-mail.
Concerns that political and credit risks will erode price gains are “overly baked” into expectations, Love said. “Bottom-up valuations can sustain the rally, should the macro and top-down political risks abate.” Political issues haven’t diminished, but are “well-known,” Love said. Turkey’s parliament in January approved constitutional amendments that will shift the center of executive power to the office of President Recep Tayyip Erdogan. Once the president signs off on
the lawmakers’ decision, it will be put to a popular vote.
The discount between shares in Turkish banks and real estate investment trusts compared with their emerging-market peers is “too great,” according to Love. “This is a valuation entrance point, though subject to further downside currency risk.” The Borsa Istanbul 100 Index is trading at 8.7 times projected 12-month earnings, compared with 12.1 times for the MSCI Emerging Markets Index.

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