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TrackInsight: Turkey ETFs plunge after two central bank principals fired

04/02/2021 | 10:45am EDT

Turkey is making the headlines again as the musical chair keeps going on in the central bank.

Turkey ETFs have lost over 20% since President Recep Tayyip Erdogan fired Naci Agbal, Turkey’s hawkish central bank governor, on March 19th. The sudden move worried investors of undue political influence on central bank matters, especially as the country is facing rampant inflation – rising too high too fast.

10 days after this ousting, Turkey is making the headlines again as the musical chairs keep going on in the central bank. On the 29th of March, President Recep Tayyip Erdogan stroke again and removed Murat Cetinkaya, central bank deputy governor.

What is going on in Turkey? And what are the consequences for investors in Turkish ETFs?

Turkey ETFs plunged as the news triggered selloffs in the stock market

All six Turkey ETFs available globally nosedived following the news. While the group was collectively up +7.8% on March 19th, their performance fell on March 22nd, in line with Turkish stocks. This brought their 2021 performance to negative territory at -11.1% (in other terms, a single day drop of more than 17%).

The selloff came with a spike in volumes too. Turkey ETFs saw an exceptional increase in exchange activity (the volumes of shares traded) as investors were panic selling their investments following the news on March 22nd.

Year-to-Date Performance and Daily Volumes of Turkish Stocks ETFs, data as of 2021-30-03

turkeyETF_020421

ETF investors added money to Turkey ETFs following the drop

Despite the sudden uncertainty around Turkey, investors are not shooting the messenger (ETFs). Turkey ETFs are passive trackers. They replicate the performance of Turkish stocks indices like the MSCI Daily Emerging Markets Turkey Index. Following the initial shock, ETF investors even seemed to consider the price drop a buying opportunity.

Turkey ETFs had record inflows of $16m on the 23rd of March. This is the largest flow of new money in those ETFs in almost six months. Furthermore, it happened just one day after the record drop of 17%.  These flows could come from foreign investors for which the drop in the Lira value increases their bargain power. This allows them to buy Turkish stocks cheaper, betting on a short-term reversal.

Year-to-Date Performance and Daily Flows of Turkish Stocks ETFs, data as of 2021-03-31

turkeyETF2_020421

Still, we cannot fail to notice that the trend has reversed since. With performance staying in the red, more investors sold their positions than others bought in – which is shown on the graph as net outflows over the past few days.

Investors were already shunning Turkey ETFs but for other reasons

If anything, investors’ dislike for Turkish equity is not a new story. The segment has been experiencing steady outflows for the past few years. ETFs investors took back $110m and $237m of asset in 2020 and 2019 respectively, leaving the segment with just $445m in assets as of the 31st March 2021.

One-year Performance and Cumulative Flows of Turkish Stocks ETFs, data as of 2021-03-31

turkeyETF3_020421

Conclusion

The recent events in Turkey illustrate how ETFs can help investors navigate the markets and execute tactical bets. Turkey ETFs make it easy to access Turkish stocks, or exit as soon as needed. Finally, for those who have been convinced by Erdogan’s recent call to foreign investor “to reap the same gains” as prior the Lira crisis, they can always do their selection here.


© www.trackinsight.com 2021
Stocks mentioned in the article
ChangeLast1st jan.
S&P GSCI GOLD INDEX -0.33% 1039.1828 Delayed Quote.-5.38%
US DOLLAR / TURKISH LIRA (USD/TRY) 1.33% 8.28985 Delayed Quote.9.23%
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