|Shares Out. (in M):||1||P/E||0||0|
|Market Cap (in $M):||28||P/FCF||0||0|
|Net Debt (in $M):||0||EBIT||0||0|
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Turkish equities are offering investors with a multi-year time horizon the opportunity to multi-bag. In $ terms, Turkish equities are down 2/3 from peak. The cheapness today extends to both the currency and the local stock market which, when combined, makes a doubling (in $s) from here for Turkish stocks a very reasonable base case.
How can we frame the cheapness? Lets start with stocks -
Lets move onto the currency -
So why are the Turkish currency & Turkish equities cheap today?
Turkish risk assets have sold off this year given a confluence of negative factors -
It's hard to deny the relevance of any of the above - QT is likely bad for offshore $ liquidity, higher oil prices do hurt Turkey, running an economy hot for political purposes is not good policymaking, more experienced/qualified treasury secretaries are generally preferable to less & more rather than less central bank independence is fairly consensually a good thing. So it's hard not to see why the narrative on Turkey is negative today. But lets consider the following. The CA situation should resolve itself over time given the FX adjustment we've now seen. Now that we're through elections & Erdogan is cemented, he should be more inclined to take his foot off the gas and let the economy cool. You can in-fact already see that from the recent banking sector loan growth data. We've already had a decent rate hike in May which has taken real rates to above-historical levels. Given that the CBT just hiked rates in May, I have some sympathy with them seemingly wanting to see what kind of effects that has on the economy before going "full-Argentina" and hiking ad-infinitum to appease the market. Having Erdogan's son-in-law running the FinMin + Treasury could end up being a good thing if at least the country gets someone in charge of the economy who Erdogan listens to & he did spend the last 2.5 years runing the Energy ministry.
So - yes there are negatives with the state of the economy & the economic policymaking apparatus today but I'm not sure they are as bad as some would make out and they appear to be more than fairly discounted by equity & currency valuations today. If the currency went back to its post-Erdogan REER, that would be ~ 45% upside from here. Banks are ~ 1/3 of the equity market - going back to LT BV multiples would suggest ~ 175% upside there. I've looked at the banking sector RoEs over the last 20+ years and there's no obvious downward trend to justify lower PBs than in the past. Corporates are the other ~ 2/3 of the equity market - going back to LT PE multiples here would suggest ~ 30% upside. Putting it all together would suggest ~ 75% upside to the equity market. Combined with the FX upside, you're looking at a combined ~ 150% upside.
If anyone else is following this closely / has a different view of the situation, would love to get a comments section going here.
- Time passing.
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