The highest Turkish stock valuations in seven years and slowest profit growth in the emerging markets are signs the nation’s longest stretch of equity outperformance since 1997 is ending.
The MSCI Turkey Index trades for 2.2 times net assets, the highest since February 2003 relative to the MSCI Emerging Markets Index, data compiled by Bloomberg and MSCI Inc. show. Earnings in the 20-company Turkey gauge will rise 7.7 percent next year, the smallest gain of 19 major developing nations, according to analysts’ estimates.
Turkey’s fastest economic expansion since 2005 and record- low interest rates spurred mutual fund managers to make Turkey their largest “overweight” holding and sent price-to-book ratios to a 10 percent premium over emerging markets, from a 45 percent discount two years ago. Citigroup Inc. and Morgan Stanley say stock pickers are too optimistic and slower profit growth will limit gains after the MSCI Turkey index outperformed the emerging markets benchmark for six straight quarters.
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