When it comes to finding value in emerging-market banking stocks, Turkish lenders stand out, according to Is Investment.
Away from financials, the brokerage is positive on Turkish companies that export and earn hard currency and those that are positioned for a potential increase in spending by local consumers, Emre Sezan and Bulent Sengonul, equity research managers at the firm, said in an interview in Istanbul last week.
Is Investment is overweight on Turkish banks at 30%, compared with lenders’ 27% allocation in the benchmark Borsa Istanbul 100 Index. Turkiye Garanti Bankasi AS and Yapi ve Kredi Bankasi AS are its most-preferred sector stocks.
Even after last year’s 32% gain, the Borsa Istanbul Banks Index trades at 5.4 times estimated earnings over 12 months, compared with 9.9 times for the MSCI EM Financials Index. That’s near the largest discount in more than eight years.
Here are the other highlights from Is Investment’s equity strategy in 2018:
n While valuations outside of banks aren’t as attractive compared with emerging-market peers, Is Investment favours companies with hard-currency revenue from exports whose share prices suggest sizable upside potential. Tupras Turkiye Petrol Rafinerileri AS and Trakya Cam Sanayii AS are examples, because they stand to gain from favourable moves in the volatile lira.
n Jeanmaker Mavi Giyim Sanayi Ve Ticarat AS is a new addition to the investor’s preferred stocks, with Sezan seeing growth in the Turkish economy this year relying heavily on domestic consumption.
n Sees benchmark index ending 2018 near 124,000, implying about 8% upside potential from current levels.
n Initial public offerings this year, estimated at around $4bn, may limit the index’s advance as they draw much of any new money flowing to the market, the analysts say.
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