Turkey ETF Hits New High on Credit Rating Chatter

Shares of the iShares MSCI Turkey Investable Market Index Fund TUR are trading modestly higher Friday and earlier touched a new 52-week high at $76.04 a day after the Borsa Istanbul National 100 surged to its highest levels in at least 25 years.

The catalyst behind TUR's good fortune, the ETF has jumped more than seven percent in the past month, is one investors have already favorably impact the iShares MSCI Philippines Investable Market Index Fund EPHE this week: Higher credit ratings.

In the case of Turkey, it is talk of a higher sovereign debt rating that has been lifting TUR, the lone ETF devoted exclusively to the country. Turkey, which has been engaged in a multi-decade conflict with Kurdish militants in the Southeast part of the country, is working to end the conflict. The government there is in negotiations with Abdullah Ocalan, the jailed leader of the Kurdistan Workers' Party or PKK, in a bid to end the bloodshed, Bloomberg reported.

Last month, Moody's Investors Service said Turkey's ongoing efforts to bring an end to the conflict could be a positive credit step. In November, Fitch Ratings upgraded Turkey's long-term foreign currency Issuer Default Rating (IDR) to BBB- from BB+ and the Long-term local currency IDR to BBB from BB, giving Turkey its first investment grade ratings in nearly two decades.

Moody's and Standard & Poor's both currently rate Turkey one level below investment grade. Like the Philippines, Turkey has been aggressive in pursuit of investment-grade ratings. In May 2012, S&P pared its outlook on Turkey's BB-rated sovereign debt to stable from positive, a move that drew Turkish policymakers' ire.

Disagreements between Turkey and S&P prompted the ratings agency to announce in January that it will no long rate individual Turkish bond issues and only maintain a sovereign debt rating on the country.

At BB, S&P has the same rating on Turkey that it has on Costa Rica, Guatemala and financially-challenged Hungary, to name a few.

Speculation of a possible credit rating upgrade has lifted shares of Turkish banks, creating a palpable trickle down effect for TUR. The ETF allocates nearly 51.9 percent of its weight to financial services stocks, roughly quadruple its next largest sector weight, industrials.

Others are taking note of Turkey's investment-grade potential.

"Turkey's short-run risks were very low, this can play a positive role in raising its rating" said Orhan Okmen, Eurasia Administrative Council Director of Japan Credit Rating Agency, according to the World News Bulletin.

Beyond TUR, investors looking to profit from a Turkish credit rating upgrade via the credit market should consider the iShares Emerging Markets High Yield Bond Fund EMHY. With an average effective duration of 6.12 years, EMHY has an almost 17.7 percent weight to Turkey, making the nation that ETF's largest country weight. The WisdomTree Emerging Markets Local Debt Fund ELD, the second-largest actively managed ETF, has a seven percent weight to Turkey. Turkey's is ELD's fifth-largest country weight.

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