Turkish Stock Volatility to Persist, Neuberger Berman Says

(Bloomberg) -- Turkish stock investors, grappling with the highest volatility levels in a year, should prepare for more of the same in 2018, according to New York-based Neuberger Berman Group.

Inflation and political events loom as the strongest headwinds for the Turkish market, Marco Spinar, an associate portfolio manager at Neuberger Berman, said in emailed comments.

Deepening political tensions between President Recep Tayyip Erdogan and the U.S. and Europe have weighed on investor confidence in recent months, increasing awareness of the risks around Turkish assets. Add to the mix the latest inflation figures, which showed annual consumer prices accelerating by almost 13 percent in November, the fastest pace since 2003.

Monday's higher-than-estimated reading came less than three weeks after Erdogan said the country's central bank was on a “wrong path” in its fight against rising prices. The bank said it will tighten monetary policy if needed, as it announced monetary and exchange-rate policy for 2018 in a statement on its website Tuesday.

Neuberger Berman's Turkish strategy will be guided largely by inflation and the independence of the central bank, Spinar said.

The negatives stemming from politics and the fight against inflation are offset by attractive valuations on Istanbul stocks, “which will attract investor dollars in a risk-on environment,” Spinar said. The benchmark Borsa Istanbul 100 Index trades at 7.8 times estimated earnings over the next 12 months, compared with a multiple of 12 times for the MSCI Emerging Markets Index.

Spinar said one Turkish stock that his firm is positive about is retailer Mavi, which started trading this year.

Mavi Giyim Sanayi ve Ticaret AS, as the company is officially known, has developed a “strong position” compared with most domestic competitors, which are focused on the lower-end, more commoditized parts of the market, Spinar said. “Mavi is an iconic brand that captures the aspirations of Turkey's younger population.”

To contact the reporter on this story: Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, John Viljoen, Paul Jarvis

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