ETF is Soaring, But Turkey is on Sale


Investors that opt to use traditional valuation metrics (such as price-to-earnings ratio) can find plenty of compelling options to choose from among ETFs tracking global markets. Even though it is a known fact that developing nations will outpace the likes of the Eurozone, Japan and the U.S. in terms of economic growth next year, some analysts still see alluring valuations among emerging markets ETFs.

Add the iShares MSCI Turkey Investable Market Index Fund (NYSE:TUR) to the list. Up 44.3 percent year-to-date, the iShares MSCI Turkey Investable Market Index Fund is trading at its highest levels in 17 months. That does not mean the ETF is not attractively valued.

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Street One Financial Market Technician David Chojnacki said in a research note out today that TUR trades with a price-to-earnings ratio of 8.11, implying a deep discount to the broader emerging markets universe.

TUR's valuation is a curious phenomenon because the Turkish economy has a lot to offer investors. Positive catalysts include a strong currency, favorable demographics and a shrinking deficit. Earlier this year, JP Morgan raised its rating on Turkey to Overweight from Neutral.

Investors have taken note. In early March, TUR had $433 million in assets under management. As of the close of markets on October, that number was $597.6 million. Chojnacki points out that even TUR has been soaring this year, there might be more upside to be had.

"The fund, closing at $59.41 yesterday still remains well off its late fall high of $75.47 that was reached at the end of 2010, suggesting that there still may be some room to run for bulls investing in this particular region of the world," he wrote.

TUR, which has annual expense ratio of 0.59 percent, allocates almost 51 percent of its weight to bank stocks. Consumer staples and industrials, the only other sectors to receive double-digit weights in the ETF, combine for over 24 percent.

Since bottoming around $44 in June, TUR's chart has gained strength as the ETF has notched a series of higher lows. Indicating that inflation in Turkey is tame, the central bank cut its overnight lending rate to 9.5 percent from 10 percent earlier today. That is the second rate cut in a month.

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