Some traders of Turkish stocks appear to have fear of heights

ISTANBUL (Reuters) – Istanbul’s stock market volumes have soared as foreigners pour money into the candidate for European Union membership, but analysts and investors say they are now combing the market to find stocks that are not pricey. Daily trading volumes on the Istanbul stock exchange in January were 56 percent higher in lira terms and 58 percent higher in dollar terms than the daily average for 2005, stock market data showed. Istanbul’s main index rose 59 percent last year, while in the banking sector Finansbank and Denizbank rose 300 and 206 percent, respectively. «You’re constantly getting calls from investors who are looking at Turkey for the first time,» said Michael Harris, a research analyst at Merrill Lynch. Retail investors are entering the market now in higher volumes than before, tempted by the higher returns than in Western Europe. Turkey’s economy is at its strongest in years, with annual growth rates having averaged 8 percent during the past three years. The country’s attractions also include a $10 billion IMF loan agreement signed in May and a 12-fold increase last year in merger and acquisition activity to $30.4 billion, a bumper year for privatization. «Global liquidity conditions, rising risk appetite for Turkey in particular, the new IMF standby deal, the start of EU negotiations, foreign interest in privatization tenders, and in 2005 foreigners were behind the rise in the financial sector… in the new year we have seen this continue,» said Muhittin Kuley, head of research at Fortis Investment. EU talks Turkey started talks to become a member of the European Union in October, which would provide what investors see as a safety net. Investors who focus on Eastern Europe have been moving some of their money into Turkey, fund managers and analysts say. «The paths of other countries (such as the Czech Republic and Poland) have been laid down, and Turkey is following that path. So they don’t feel the need to overly examine the country; it’s another play on convergence,» said Debbie Orgill, an economist at ABN AMRO. Istanbul’s trading volumes stood at $1.25 billion a day in January. Foreigners, meanwhile, have been increasing their share of business in the stock market to 66 percent of trading at the end of last year from 52 percent at the end of 2004. In January that figure rose again to 68 percent. Increased volumes encourage new investors as liquidity allows them to get in and out of a stock more easily. Low US interest rates have encouraged investors to seek higher returns in emerging markets, but now there is a risk that as rates rise, investors will remove their cash. Analysts say the market’s liquidity would be the first thing to suffer. «It is said that interest in emerging markets is lasting. But it could decrease if world markets turn stormy,» said Hakan Avci, head of portfolio and fund investment at Raymond James. Investors, meanwhile, see little mileage left in some of last year’s top risers. Toub reckons heavyweight conglomerates Sabanci Holding and Koc Holding are no longer cheap, while a 34 percent increase this year in the share price of top white goods firm Arcelik has made it look expensive. «I’m not comfortable with the valuations in Turkey at the moment,» he said. Others are looking for growth stories elsewhere. Aberdeen Asset Management sees the best picks among those companies exposed to consumers – whose spending power is set to grow – such as food retailer Migros and insurer Aksigorta. Fortis’s Kuley reckons the overall rise in prices will not be repeated in 2006. «But… if the liquidity conditions do not turn negative, we foresee the upward movement will continue in selected stocks,» he said.

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