(MENAFN- Gulf Times)
Buy Russia and sell Turkey was a favourite refrain six months ago.
While traders were savouring US President Donald Trump's budding bromance with Vladimir Putin, Turkey's Recep Tayipp Erdogan was headed for a referendum.
Now, the pendulum has swung the other way, according to investors including Schroders, Union Bancaire Privee UBP SA and Carmignac Gestion SA.
'We've been disappointed on Russia, said Mathieu Negre, the London-based head of Union Bancaire Privee's global emerging-markets equities team, which cut its Russia holdings in recent weeks while adding Turkey. 'We were overweight and it has not worked well.
Investors are reassessing the relative merits of the two countries' stock markets as crude oil languishes around $50 a barrel and US-Russian relations cool, while Turkey clocks up economic growth of 5% as Erdogan's government floods the country with easy credit. Russia's Micex has retreated 15% this year, while the Borsa Istanbul has rallied 29%.
Negre says he's boosted his holdings of Turkish stocks to 2.3%, compared with 1.2% for MSCI Inc's benchmark. Meanwhile, he's trimmed Russia to 5% from 5.5%, still higher than the index's 3.2%.
Turkey is one of those places where there's lots of stuff happening, but when you look at the actual growth numbers economically, it's still a decent environment for equity investors
n 'I thought the oil price could be stronger than it has been year to date. There is a lot of worry on that front due to the increase in supply. Inventories are still very high. It creates a negative cloud around that asset, which is so critical for Russia
n 'There were some overoptimistic expectations on sanctions removal around the story of the new US president and the Russian president getting along quite well. And in fact it has completely reversed. Now, if anything, it's a liability
n 'Despite being cheap and being out of recession a macro environment we normally quite like if the oil price moves downward then probably we'll have to wait a lot longer on this one
According to Schroders' Rollo Roscow, the growth that's fuelled appetite for Turkish assets is being won at a cost. The lira dropped for a fifth day on Friday, its longest losing run since April.
'The economic policy for Turkey is, not on the right track, said Roscow, who manages the €749mn ($843mn) International Selection Emerging Europe fund. 'By boosting consumption and increasing credit in a market that's already saturated with credit, so the latest round of easing is going to increase the current-account deficit and lead to a weaker lira
Charles Zerah, a fixed-income manager at Carmignac Gestion Zerah, said he 'still likes Russian assets. 'The risk-reward seems good for us, he said. 'What surprised is to a certain extent the sell-off in commodities and the consequences on the economies of commodity producers. There was some disappointment because the reflation trade did not materialise to the extent that people expected, and Russia is a good example.
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