A Greek portfolio manager’s view of Turkey as an emerging market

The strong performance of stock markets in emerging economies over the past two years is not mere happenstance but the beginning of a long-term trend, argues Vassilis Karatzas, managing director of the Global New Europe Investment Capital portfolio company. In an interview with Kathimerini, Karatzas said that Turkey is a reference point for Global, as its economy is undergoing significant changes and offers strong profit opportunities, due to the maturation of its banking system and the improvement in its macroeconomic indicators. He notes that Turkish banks account for about half the total capitalization of the country’s stock market. This is projected to rise further in 2006, due to the still-low penetration of the banking system in the economy, and largely accounts for the recent rise in bank share prices. A bill about to be voted through the Turkish National Assembly is expected to give a strong boost to the mortgage loan market. Another important factor propelling bank stocks along is the interest of foreign investors in buyouts. Moreover, the privatization of several companies is expected to maintain the strong inflow of foreign direct investment, which bolsters liquidity. The flourishing Turkish economy has been growing at rates of more than 5 percent in recent years and its once notoriously volatile currency has stabilized. «Global has been enjoying an average yield of 25 percent from the positions it has built in the Turkish stock market,» noted Karatzas. He conceded that the bird flu scare may affect tourism, but so far there have been no booking cancellations. Besides, he added, the economy at the current phase is based on domestic consumption rather than tourism. What bird flu? Characteristically, the Istanbul exchange almost completely ignored bird flu, with selling pressures lasting for only about an hour. Besides Turkey, all other economies neighboring Greece present investment interest, being in a phase of rejuvenation, Karatzas said. The areas of the southeastern Mediterranean and the Balkans, with a cumulative population of about 200 million, are of high geopolitical significance and the restructuring of their economies is reducing investment risk. So lower borrowing, improved political stability and macroeconomic factors, the existence of good companies and the training of large numbers of managers abroad are additional elements that improve the profile of these markets. Indeed, it is the first time since World War II that there has been such a clear turn of international investment capital toward emerging markets as has occurred over the last two to three years. Another important development has been that Gulf riches are no longer directed toward America and Switzerland but are invested mainly in Egypt, Turkey and the eastern Mediterranean in general. At the same time, these countries have begun exporting to the Gulf, while Greek construction companies are gradually returning to the Middle East. Karatzas argues that the Greek stock market’s momentum is supported by firms’ rising profitability and the shedding of the low reputation it had fallen to in recent years. Karatzas is optimistic about the prospects of Greek portfolio investment companies, which are trading at large discounts, in contrast to those in the US or the UK, which are trading at premiums. Global is planning to launch a new hedge fund, Levant, in the next few weeks, which will invest in regions of the eastern Mediterranean and hopes to attract foreign institutional investors who manage insurance funds. Its assets will total about $40-50 million.

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