Turkey: the Istanbuls are out in force

Turkey, "long a swamp of corrupt politics and rotten economics", has produced an impressive turnaround, says Lisa Hess in Forbes. Since being elected in November 2002, prime minister Recep Erdogan has presided over the return of political stability and a dramatically improving economy. GDP growth is running at 4-5%, inflation has dropped to a 34-year low of 14.3%, interest rates have nearly halved to 26%, and the Turkish lira has recovered sharply from record lows against the dollar. Economic reforms and the absence of restrictions on foreign investors have also underpinned soaring foreign investment in the benchmark Istanbul Stock Exchange National 100 index, which has advanced by more than 70% since Erdogan's election to a record high above 20,000.

Many fund managers are also betting that Turkey's efforts to secure the reunification of Cyprus before its impending entry into the EU will prompt the latter to set a date for negotiations over Turkey's accession as early as the end of 2004, says Vito Racinelli in Barron's. A date for talks would prompt a "convergence rally" as further reforms lower interest rates, inflation and government deficits to"the EU's market-appealing averages".

According to Riad Younes of the Bank Julius Baer International Equity Fund, the growing likelihood of Turkey joining the EU, along with the solid economic outlook and cheap valuations - the average 2004 p/e of stocks is 13 compared to 15-16 for other emerging markets - implies upside of at least 200% over the next five years. Especially promising stocks include Isbank, the sector's best bet in a strengthening economy, says Hess. Consider also Koc Holdings, a conglomerate with interests spanning cars, food processing and securities brokerage. It's the "best way" to play rising Turkish living standards.

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