Investors look on the bright side in Turkey

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Add the pursuit of Kurdistani independence to the list of worries yet to crease the brow of investors in Turkey. While prices for Turkish stocks, the lira and benchmark bonds have ticked lower since this week’s Kurdish referendum, they have not revisited the lows of July.

Contrast that blasé reaction with that of oil investors: Brent crude prices hit a two-year high after Turkey threatened to cut off northern Iraq from foreign markets. Yet regional instability is just one more thing for owners of Turkish debt and currency to shrug off, distractions compared with a general enthusiasm for emerging market assets.

For instance, analysts at Commerzbank this month questioned the economic growth rate reported by the Turkish Statistical Institute for April, May and June. At 2.1 per cent, compared with the previous quarter, the expansion was world-leading. Growth in investment was 24 per cent, official figures said.

Given Turkey’s recent history of political unrest, and seizure of corporate assets belonging to opponents of the regime, the Commerzbank analysts were surprised by economic and investment booms. External estimates suggest foreign direct investment dropped 8 per cent in the first half of the year.

The German bank’s report also contrasts the rebound in Turkey’s official tourism numbers with the health of the Grand Bazaar in Istanbul, where it says shops are closing by the dozen. Officials denied any political interference at TurkStat, calling the analysis misleading.

A legitimate explanation for the boom might be a burst of easy lending encouraged by a government guarantee, since withdrawn. But that points to other fears that investors may also be ignoring.

One is construction. At about a 10th of the economy, the sector is close in size to peaks seen in the building booms of Ireland and Spain, before the financial crisis hit.

GAM, the asset manager, also highlights large external liabilities at Turkey’s banks. Matched by hard currency lending, the figures seem to imply extensive borrowing in dollars by Turkish companies. The exposure suggests potential vulnerability to a weaker lira, in a country still running a substantial current account deficit.

For Turkey, it is the sort of list where none of the concerns really matters, until suddenly all of them do.

dan.mccrum@ft.com



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