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Turkey ETF Looks Appetizing Ahead of Thanksgiving

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Turkey is in great demand as the bird is the high point of a blessed Thanksgiving dinner. But in the investment world, there’s another Turkey that has been drawing attention currently. We’re talking about the country named Turkey. Let’s look at the investment prospect surrounding this country right now and see why it’s being rallying.

The pure-play Turkey ETF iShares MSCI Turkey (TUR - Free Report) gained about 16.2% in the past one month (as of November 20, 2020) versus 3% gains in the S&P 500.

What’s Behind the Bullishness?

Turkey’s central bank on Nov 19 hiked its key interest rate by 475 points to 15% and pledged to take steps to contain double-digit inflation. The move boosted the currency lira. The inflation rate in Turkey rose to 11.89% in October of 2020 from 11.75% in September, in line with market forecasts. On a sequential basis, consumer prices increased 2.1%, above 1% in September and matching expectations.

Turkey’s President Tayyip Erdogan – a long proponent of rate hike – said on Nov 20 that the central bank’s rate hike move was necessary. The monetary tightening was the first move taken by the bank governor Naci Agbal, who took the chair about two weeks ago.

The latest move was basically taken to restore the currency’s freefall. Lira became the worst-performing emerging market currency of the year lately. Investors should note that on Sep 24 also, Turkey’s central bank enacted a rate hike. Turkey’s central bank had raised interest rates for the first time in September since a currency crisis in late 2018, surprising the world in a low-rate environment. Turkey’s central bank that time increased interest rates by two percentage points, pulling the beleaguered lira off record lows.

Asset Flow

TUR amassed about $35.88 million in assets since Sep 24. This was in contrast to iShares MSCI Emerging Markets ETF (EEM - Free Report) gain of $60.68 million in assets. All in all, post the central bank's moves and lira’s restoration in value, Turkey’s pure-play fund TUR has benefited considerably.

Turkey ETF in Focus

The fund seeks to deliver investment results that replicate the price and yield performance of the MSCI Turkey IMI 25/50 Index which is composed of Turkish equities. Consumer Staples (23.46%), Financials (22.99%), Industrials (18.66%) and Materials (14.48%) are the top sectors in the fund. With AUM of $189.3 million, the fund has 41 holdings. It has an expense ratio of 0.59%.

Will the Rally Last?

While the rate hike propelled Turkish stocks higher, the way ahead from here may not be smooth. This is especially true given that the coronavirus infections are spreading in Europe.

Turkey’s monetary policy is majorly governed by the country’s president. President Erdogan is generally a proponent of low rates and credit-induced growth. The central bank has enacted a series of rate cuts in the past one year.

Against this backdrop, how much further rate hike is possible in the coming days is doubtful. This keeps endangering the lira’s future too. Moreover, current volley of upbeat vaccine news means the rise in U.S. treasury yields and the greenback, which in turn will once again weigh on emerging market currencies.

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