Top Turkish Equity Fund Bets on Banks to Be Among 2021 Stars

(Bloomberg) - Turkey's top performing equity fund is buying banks and other large industrial companies and believes they will benefit the most from an economic upturn in 2021.
That shift comes at the expense of the smaller companies so loved by the Turkish legion of mom and pop investors that helped Tacirler Portfoys $ 80 million equity-intensive fund outperform its peers, General Manager Okan said Alpay. According to the national fund distribution platform Tefas, the fund gained 102% in 2020 through December 18. This is the most important value among domestic stocks.
The ratings of Turkish lenders have become “significantly” cheap compared to regional competitors and the broader local market, Alpay said in an interview in Istanbul. The overhaul of the country's economic management and a return to more conventional central bank policies could generate profits over the next year, he said.
Until early November, stocks in Turkey's largest companies, including their banks, had borne the brunt of a sell-off abroad when the lira fell amid investor concerns over monetary policy, which prioritized economic growth above all else. That began to change when President Recep Tayyip Erdogan signaled his support for an investor-friendly approach to running the economy.
The replacement of Turkey's finance and finance minister and his head of the central bank has resulted in profits. Over the past six weeks, the Borsa Istanbul Banks Index is up 23%, while the Borsa Istanbul 30 Index of Most Widely Used and Biggest Companies is up 17%. This is comparable to the 7% increase in the MSCI Emerging Markets Index. If commitment to Orthodox politics proves sustainable, banks could find a place among the fund's longer-term holdings, Alpay said.
Tacirler has started investing in stocks hardest hit by the pandemic, including airlines and tourism, and is betting that the Covid-19 headlines will wear off.
Turkish stocks have the potential to gain more than 100% in US dollars in "just a few years" as the country's revised economic policy comes with increased flows towards emerging markets, said Semih Kara, chief portfolio manager of Tacirler Portfoy. Tacirler has spoken to potential overseas equity investors, and "they have a good interest," he said.
Foreign investors
This proposal is supported by some overseas money managers. "Turkish stocks have the rare combination of strong growth prospects and attractive current valuations," said Thea Jamison, managing director of Change Global Investment in Camas, Washington. "As long as the authorities stay on their trail, we believe that investors will be well rewarded for taking the Turkish risk."
Bank Julius Baer completed most of its brief recommendations on Turkish assets in mid-November, said Mathieu Racheter, head of the bank's equity strategy. "Despite the recent rally, we are still seeing value in Turkish bank stocks versus other EM bank stocks," he said.
(Adds the strategist's quote in the last paragraph and updates prices.)
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