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Turkey ETF Tastier on Thanksgiving

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Thanksgiving and Turkey go hand in hand. A Thanksgiving dinner isn’t quite complete until a roasted turkey is brought to the table.

Apart from the bird, another Turkey has been grossing investors’ attention this Thanksgiving. Yes, we’re talking about the country.

The country’s investment scenario has improved as the pure-play iShares MSCI Turkey ETF (TUR - Free Report) added more than 3.5% on Nov 21, just before Thanksgiving. Let’s take a closer look at why.

What Was Wrong?

Turkey stocks were heavily sold off in August. The sell-off in lira, double-digit inflation, aftereffects of policy tightening in the United States, concerns about economic stability and worsening diplomatic ties with the United States had dealt a heavy blow to Turkey stocks.

However, to shore up the currency, the Central Bank of Turkey raised its benchmark interest rate by 625 bps to 24% on Sep 13, 2018, beating market expectations of a 425-bp hike. The move made borrowing costs scale to the highest level since 2004 (read: Top Foreign ETFs of Q3).

How Things Improved From October

Things got better in mid-October when relations between Ankara and Washington improved after the Turkey released U.S. pastor, Andrew Brunson, after two years. On Oct 9, Finance Minister Berat Albayrak rolled out a host of measures to fight a 15-year high inflation and asked for private sectors support.

Per the measures, the country’s private sector has agreed to charge at least 10% lower prices for its goods.  The new program will check the rise in energy prices until the year-end and a pickup in VAT rebates. Banks would be providing 10% discount on high interest loans taken post Aug 1 (read: Turkey ETF Surges Post Release of American Pastor).

The finance minister commented in October that he expects inflation to cool down for the rest of the year. He also announced a consumer tax reduction for furniture, white goods and motor vehicles, which economists believe is lowering year-end inflation by around 1%.

Also, a sharp decline in oil prices and moderate gains in the U.S. dollar in the past month helped the Turkish currency lira to stay steady. Turkish lira has gained about 5.9% in the past month against the U.S. dollar while Invesco DB US Dollar Bullish (UUP - Free Report) inched up 1%.

Investors should note that United States Oil (USO - Free Report) and United States Brent Oil (BNO - Free Report) have lost about 21.9% and 20.4%, respectively, in the past month (as of Nov 21, 2018) and since Turkey’s 90% of the crude requirements are met by imports, movements in oil price and greenback helped the Turkish market to a great extent (read: Higher Oil Prices to Spell Trouble for These Country ETFs).

If these weren’t enough, there was a massive sell-off in Wall Street and some risk-loving investors turned to beaten-down but high-yielding emerging market economies to cash in on the cheaper valuation. Overall, TUR has risen 4.5% in the past month against 3.6% loss in SPDR S&P 500 ETF (SPY - Free Report) .

TUR in Focus

The ETF provides a pure play exposure to 62 Turkish stocks. The fund is highly concentrated on its top 10 holdings which make up for nearly 60% of assets. Financials dominates the fund’s returns with about 29% of the portfolio while industrials, consumer staples and materials have double-digit exposure in the basket.

The fund has amassed around $516.2 million in its asset base and trades in solid volume of about 1 million shares per day on average. The fund charges 62 bps in annual fees from investors and yields 4.27% annually (as of Nov 21, 2018) (see: all broad Emerging Market ETFs here).

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