Many investment banks have already recommended TL swaps and bonds as the best carry trade in EM, but JP Morgan is one of the first to go overweight in Turkey’s cheaply priced equities.
This is an excerpt from the research report titled “Upgrade Türkiye to OW: year-end catalysts were good enough”
30% min wage hike + 250 bp rate cut + Dec CPI beat is enough to justify an OW call given low foreign ownership and low valuations. Add BIM to the Top 10!
The backdrop of low foreign ownership and low valuations indicates strong medium-term upside for the stock market.
We look forward to the combination of rate cuts + economic recovery that should boost the market in 1H25. We are on 6.3x 12m fwd PE currently, a 47% discount to EM. If we rally back to the 15-year average or a 32.6% discount to EM, that implies 27.3% upside. In USD terms, consensus forward earnings are 16% below the ‘22-23 average when ‘25 USD GDP is 26% higher on JPMe.
Re-rating + higher earnings can be a powerful combination. The key downside risk is the potential real depreciation of the TRY – which we expect to start only in 4Q25. Other risks include: Türkiye’s mid-tech manufacturing base is at risk from US tariffs on China displacing Chinese exports into Europe and MENA; and improving Turkish fundamentals could be ignored by EM investors shying away from the highly uncertain earnings (inflation-adjusted accounting) and the low (70bp) weight in EM. We reflect this change in the CEEMEA Strategy Top 10 by adding BIM, the biggest stock in the index, which should do well as TRY strengthens in real terms, at the expense of SA retailer, Truworths.
BIM trades on 11.8x/8.6x ‘25/’26 PE on JPMe; the ‘26 EPS is >50% discount to GEM peers. On a country basis, that leaves us: OW UAE, South Africa, Greece and Türkiye; N Saudi; UW Poland.
Why hasn’t the market done better since January? Oil, DXY (Trump) and Darwinism.
Given the string of good news on key domestic issues in the last 6-8 weeks, we are a little surprised MSCI Turkey is broadly flat in USD terms (+1.4%) and flat vs. the EM index (+1.8%) since 1 Dec. Frankly, if we had known the outcome of these catalysts on 1 Dec or in our 9 Dec note, Still trying to time the upturn in Türkiye. Stay N, we probably would have upgraded to OW. The key restraints on the market have been rising oil prices – with most investors believing the JPM and consensus forecast of declining oil prices in ‘25, the spike in Brent (cold weather + tougher sanctions on Russia) caught many investors by surprise.
And Türkiye is the most sensitive of any MSCI EMEA oil importer to rising oil prices in terms of current account and GDP. Also, the stronger dollar is a negative for all EM’s, including Türkiye – MSCI Türkiye needs real appreciation in TRY to work.
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