Jyske Invest Turkish Equities

Market Comments, Q1 2012

Investors’ risk tolerance returned

Review

The fund generated a return of 24.70% for the first quarter of the year against a benchmark return of 26.75%. We were outperformed by the benchmark due in great measure to our choice of companies within industrials and a higher exposure to the more defensive companies than the benchmark. 

Investors’ risk appetite returned, which contributed to the excellent start to the year. A number of economic indicators showed improvement of the US economy. Moreover, the European Central Bank made cheap financing available to the struggling European banks again. In Turkey, growth surprised to the upside in the first quarter at the same time as the yield level has been on the decline. All of which contributed to the positive trend in the first quarter.

But there were not only positive stories in the first quarter. The tense relationship between the western world and Iran has intensified, causing the oil price to increase. The oil price increased by more than 10% in the first quarter. Turkey is adversely influenced by a high price since the country imports the majority of its oil consumption. This is one of the reasons behind the large current-account deficit.

Outlook

Investors have abandoned a great deal of their concerns over the recent months. This does not, however, change the fact that a number of risks may easily enter the stage again. The EU and the IMF are tackling the debt crisis in Europe, but it has not been solved. The US has pursued expansionary fiscal and monetary policies to boost US growth – it is on its way, but there are many obstacles along the way. Germany is still the growth engine in Europe, but as a major industrial and export nation the country is dependent on growth worldwide and not least in China. China has delivered high growth for many years, but recently the central government has been forced to ensure the balance between growth, inflation and other economic imbalances through a number of economic initiatives. The balancing act appears to have been successful for China but it cannot be taken for granted. Turkey is still struggling with a high current-account deficit and rather high inflation. However, we expect both to be on the decline throughout the year.

We are moderately optimistic despite the many risks. Especially because most risks are well-known and many have been addressed politically. Accordingly, investors can take into account the potential pitfalls when they assess the potential of the equity markets. But given the many major challenges at play, the outcome of all challenges will not necessarily be positive – and we expect this to result in price bumps along the way. Notably a change in investors’ risk tolerance and an escalation of the situation in Iran may have a significant effect on the equity market.  

Turkish growth cannot be maintained at the same high level as in the previous years, but Turkey will still have reasonable growth compared with the developed countries. We expect GDP growth of 3%-4% for 2012. In our view, the equity markets are relatively attractively priced.

Please note

Past performance is not a reliable indicator of future results. The value of and return on your investment may fall, and you may not get back the full amount invested. Investment in small and emerging markets may prove more volatile than investment in other markets. An initial charge is usually made when you purchase and sell units. The fund may invest in instruments denominated in various currencies. You should be aware that changes in exchange rates may have an adverse effect on your investment. This may also be the case if EUR is not your base currency.

Information in this text should not be regarded as investment advice, and investors should consult their own investment and tax advisers before buying or selling.