Turkish stocks are said to be among the biggest holdings in a top-performing fund of U.S. investment giant BlackRock, according to a report on Wednesday, indicating its renewed interest in Türkiye.
The fund, which had near-zero exposure a year ago, has made a pivot as it sees the market "on the cusp of a possible turnaround," a report by Bloomberg News said.
Slowing inflation and steady interest rate cuts are setting the stage for better equity performance in Türkiye after years of weaker returns, the report said, citing Samuel Vecht and Emily Fletcher, co-managers of BlackRock’s Frontiers Investment Trust Plc, which has outperformed 98% of its peers over the past five years.
Türkiye now makes up almost 10% of the fund’s holdings and Türkiye allocation is the third-biggest, after Saudi Arabia and the United Arab Emirates (UAE), it suggested.
"We feel there is opportunity, and hence you can see in our portfolio, we have a large allocation there," Fletcher said in an interview. "While the dynamics look good, we’ll continue with that exposure."
Foreign investors have been wary about Turkish stocks in recent years amid a weaker Turkish lira, but have displayed more interest following a shift to more conventional economic policies in the middle of 2023.
This month, the Turkish main stock index – Borsa Istanbul 100 Index – has outperformed most emerging market (EM) peers, rallying 15.2% in dollar terms, as inflation and growth readings indicate the economy is getting back on track.
Türkiye's annual inflation touched 30.89% in December, marking the lowest in about four years.
Last week, Fitch Ratings also raised the country’s credit outlook to "positive," citing increased foreign exchange reserves and "meaningful progress in reducing economic vulnerabilities."
The Turkish central bank's total gross reserves surpassed $200 billion for the first time this month and are estimated to have surged further last week, supported by gold prices.
According to Bloomberg, Turkish holdings of BlackRock's fund include lender Akbank, which has surged 43% since mid-October, and hospital chain MLP Sağlık Hizmetleri AŞ, up 38% in the same period.
"The quality of the companies that one can buy find in Turkey is often fairly high," Vecht said, citing in particular the "good management" in many of these companies.
Valuations are another plus, according to Vecht, who noted Turkish banks look "very attractive on a global basis" in terms of price-earnings ratios.
Fletcher said the biggest question for investors looking at Turkish markets is whether the disinflation process will continue.
The central bank's interim target for inflation by the end of 2026 stands at 16%, with forecasts between 13% and 19%. It sees inflation falling to 9% in 2027.
The bank last cut rates by 100 basis points to 37% last week, while it is expected to convene for this year's first quarterly inflation report next month, where it could offer more insights on expectations and targets.
