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Turkey remains investment sweet spot within the global equity markets

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The Turkish equity market has been one of the world's best performing equity markets with a year-to-date return of more than 30% in dollar terms.

According to HSBC Global Asset Management, optimism remains in the medium to long term in the region as the country continues to emerge as a regional economic power.

Ercan Güner, manager of the $172m HSBC GIF Turkey Equity fund, managed from Istanbul, said the Turkish economy remained resilient to the global economic downturns witnessed in recent years, benefiting from low levels of public and household debt, favourable demographics and a solid and profitable banking industry.

He also added that after posting strong GDP growth rates of 9% in 2010 and 8.5% in 2011, Turkey’s growth rate is expected to moderate to 3.6% in 2012, according to the latest survey of consensus expectations released by Central Bank of Turkey (CBT).

This would represent a soft landing rather than a return to the “boom and bust” periods that the Turkish economy typically experienced in the 1990s.

HSBC say that the Turkish economy is still partially insulated from the Eurozone crisis. Turkey is benefitting from providing the increased demand from Europe for cheaper quality products.

Another important factor behind the strong export performance was Turkey’s increasing penetration to Middle East and North African economies (MENA) countries on the back of strengthening political and economic ties with the region.

Being highly dependent upon imports of energy and raw materials, the Turkish economy has also benefited from easing oil and commodity prices.

These combined factors have helped to reduce the sizable current account deficit, which reached 10% of GDP in 2011, whilst inflation has dropped to 9.1% from double digits in 2011 and is expected to decline further to 6.7% by year-end according to the CBT’s latest survey.

Güner said: “Although the large current account deficit constitutes one of the main risks for the Turkish economy, we remain encouraged by the Government’s recently-introduced incentive scheme to tackle the structural and long standing current account deficit problem over the long term and also by CBT’s flexible monetary policy over the short-term.”

Meanwhile, despite its strong year-to-date performance, the Turkish equity market remains inexpensive according to Güner, with valuations trading on Price Earnings Ratios of 10x, which is close to both the five-year historical average and the broader emerging market average.

The HSBC GIF Turkey Equity fund is a top decile performer over the past three years, returning 65.4% compared to the Morningstar Offshore Equity Sector average return of 50.8% over the same period.

According to Morningstar, year to date, the fund is the fourth best performer of all Ucits funds, with returns of 47.2%.

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