The Kapali Carsi

Would you invest a dime in Turkey?

I have been getting a lot of calls from investors, those with a longer-term focus as well as the usual short-term hedgies, who are obviously concerned about the political and economic developments in Turkey. I used to urge them to be cautious, while also emphasizing the potential gains they could have if Turkey emerges from the political crisis unscathed. I should have told them they should not invest a dime in Turkey at the moment- at least until we can see ahead, irrespective of how attractive most Turkish assets are right now from a valuation point of view. To explain why, let me summarize for you the recent political events:

Turkey’s largest conglomerate Koc’s oil refiner Tupras, which also happens to be the country’s largest industrial company, was fined TRY 412 million (USD 185 million at the moment, but may be less in a few days!) by the competition authority. Koc was harshly criticized by PM Recep Tayyip Erdogan for sending doctors and medical equipment from its nearby American Hospital to its Divan Hotel by the Gezi Park to treat Gezi protesters at the end of May, early-June. Since then, the conglomerate has not had easy with the government. For example, its national warship contract was recently cancelled.

Speaking of treatment, as the New York Times reported, “President Abdullah Gul signed a measure into law that makes it a crime to administer emergency first aid without government authorization.” This is a direct attempt to intimidate not only Koc, but also the scores of medical professionals who, acting independently, treated protesters during the protests.

Speaking of the President, despite his attempts to find a middle-ground (BTW, he used to be the ruling AKP’s number 2 guy, and so you may question his impartiality), the Parliament’s Justice Commission, which is dominated by the AKP, approved the amendments that will give the government significantly more control over the Supreme Council of Judges and Prosecutors (HSYK). The amendments will be debated next week in the General Assembly, which is also dominated by the AKP.

The Saving Deposits Insurance Fund (TMSF) froze the assets of Istanbul mayoral candidate Mustafa Sarigul for an unpaid bank loan from 1998. I have no idea if the claim has validity, but obviously, as Transportation Minister Binali Yildirim, who is running for mayor in Turkey’s third largest city Izmir, said when his brother-in-law was recently detained for bribery in Izmir Harbor, “the timing is meaningful”. I am not a big fan of Sarigul, as I find his tactics too Machiavellian, but I think the AKP (I am not bothering with the argument that TMSF is independent) is making a grave mistake by making him look like a victim.

In the meantime, the purge of Fethullah Gulen sympathizers continues unabated: More reassignment of police officers and prosecutors, and the purge seems to have spread to other parts of the state: A deputy manager and two division chiefs from the banking regulator, a dozen or so from state TV TRT and several from Telecommunications and Communication Presidency (I know the name sounds weird, but I just translated; they act as the internet watchdog, among other duties).

Speaking of the internet watchdog, probably displeased with what the likes of me are writing, and undeterred by the criticisms, the government passed an omnibus bill that included the controversial law making that will allow them to easily block websites. . I guess they have not heard about VPN:), but still this is yet another illustration of their approach to democracy and freedom. Demonstrations are planned about the measures this evening (Saturday), which will be probably dispersed by the police, in their usual humanistic and democratic approach:(

Turkish appeals court approved conviction of (Turkish football club) Fenerbahçe chairman in the well-publicized match-fixing case. I think I already said it once, but the timing is meaningful, to say the very least…

You may want to thank me for having summarized the week’s political events, but all this happened on Friday!!! Well a couple (HSYK and internet) late Thursday, after the work-day ended, so I took the liberty of bundling them to Friday as well:) That’s why I would tell you, independent of my worries on the economy that I am continuously referring to in this blog, that you are better off throwing your dime to the street. This way, some homeless chap might find and make better use of it…

I should tell you that some investors have made a fortune from doing exactly the opposite of what economists tell. So it could be that we have seen the bottom of Turkish assets, and that I will have to refer to this post in shame a few months. Unlikely, given the deadly combination of political and economic woes before local and presidential elections. Besides, my track record isn’t so bad when it comes to the BIG picture. The last time I made such a bold claim was in the spring of 1997, in my senior seminar where I looked at Russia’s investment prospects and concluded that I would not put a dime in the country- I actually had a dime I threw out the window to be illustrative. Look what happened there a year later!:)….

One Response to “Would you invest a dime in Turkey?”

KMJanuary 20th, 2014 at 3:26 pm

I miss the HDN comments and discussions, Emre Bey, but I gotta say, in your heart of hearts you knew there was no chance of a rate hike today. Taking the advice set out last summer on the day his majesty arrives in Brussels? Much too weak for the ruler of the world.