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Turkey Inflation at 15-Year High: ETF in Focus

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Turkey’s annual inflation was 25.24% in October — marking a 15-year high. Inflation in the previous month was reported at 24.52%. Core inflation, which leaves out volatile energy and food prices, was also quite high at an annual rate of 23.44% in October (see: all the European Equity ETFs). 

Inflation reached these high levels mainly due to increase in prices of clothing and footwear. Prices were up 12.7% in October. On a monthly basis, consumer price index and producer’s prices rose 2.67% and 0.91% respectively. Food and alcoholic beverage rose 3.22% in October while the costs of entertainment and culture increased 2.07%. On a yearly basis, the biggest increase of 37.92% was in the furniture and household segment. Transportation was the only space where price levels increased a meager 0.85%.

Treasury and Finance Minister Berat Albayrak said on Nov 5 that inflation will cool down in the coming days and added that the worst is over as far as the country’s inflation is concerned. President Erdogan has been putting pressure on the central bank to lower interest rate to stimulate economic growth. However, the apex bank has stuck to its stance of tightening monetary policy.

On Sep 13, the Central Bank of Turkey hiked its main interest rate to 24%, which marked an increase of 6.25 percentage points from the previous 17.75%. This was the biggest rate hike in President Erdogan’s 15-year rule. The same rate was maintained in October (read: Turkey ETF Surges Post Release of American Pastor). 

On Oct 9, Albayrak issued a new set of measures to fight inflation and urged the support of the private sector. The country’s private sector had agreed to charge at least 10% lower prices on its goods.  The new program also included a freeze on energy prices until the year-end and an acceleration of VAT rebates. Banks will provide 10% discount on high interest loans taken after Aug 1. The central bank on Oct 31 forecast Turkey’s year end inflation to be 23.5% and foresees it to be 6.5% by the end of next year (read: 5 Sector ETFs to Sizzle on Upbeat October Jobs Data).

Turkish lira could have plunged after the policy rate fell to its lowest level in four years on a real-term basis. However, with the producer price index slowing down for the first time in nine months and core inflation below median estimate per Bloomberg’s survey, there may be signs of improvement in the country’s outlook. Below we highlight iShares MSCI Turkey ETF (TUR - Free Report) which gained nearly 4.5% on Nov 5: 

ETF in Focus

TUR

The fund tracks the MSCI Turkey Investable Market Index and comprises 62 holdings. The fund’s AUM is $518.8 million and the expense ratio is 0.62%. Sector wise, Financials (28.1%), Industrials (22%), Materials (13.4%) and Consumer Staples (12.6%) have double-digit allocation. The fund is highly liquid having a daily average traded volume of 983,000 shares. It has gained about 14.6% over the past month. It has a Zacks ETF Rank #5 (Sell) with a High risk outlook.

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