Evli Emerging Frontier Fund Bets on Turkish Small-Cap Stocks

Evli Emerging Frontier Fund Bets on Turkish Small-Cap Stocks

The Evli Emerging Frontier Fund is making a bold move by investing in Turkish small-cap stocks, anticipating a surge as the country implements stricter economic measures, particularly focusing on reducing inflation. This decision follows the re-election of President Recep Tayyip Erdogan and the appointment of a market-friendly team. These developments have led to a resurgence in investor confidence and a substantial $4 billion in net inflows since June 2023. Notably, the Turkish lira carry trade has gained significant popularity, yielding a remarkable 12% return over the span of six months, driven by high-interest rates and a shift towards more traditional economic strategies. Despite a downturn in emerging markets, the Evli fund has managed to achieve a remarkable 30% gain over the past year, outperforming the broader MSCI gauge. Fund managers Ivan Nechunaev and Burton Flynn have expressed positivity and neutrality, respectively, towards investing in Turkish small-cap stocks. Nechunaev specifically highlights the increasing appeal for long-term capital.

Key Takeaways

• The Evli Emerging Frontier Fund foresees a 30% potential return in Turkish small-caps due to Turkey's adoption of conventional economic policies.
• Turkey's policy overhaul, including a robust rate hike to 50%, has reinstated investor confidence, resulting in a $4 billion net inflow since June 2023.
• The Turkish lira carry trade offers a yield of over 12% in six months, attracting investors seeking high-interest rates amidst global currency dynamics.
• The Evli Emerging Frontier Fund's investments in Turkish companies such as Escort Teknoloji and Orge Enerji have significantly contributed to its 30% gain in the past year.
• The global currency market dynamics, fueled by diverging monetary policies, are beneficial for G-10 carry trades and the Turkish lira carry trade.

Analysis

The decision of the Evli Emerging Frontier Fund to capitalize on Turkish small-cap stocks, driven by stringent economic policies and efforts to curb inflation, has yielded a remarkable 30% gain over the past year. This strategic shift, following President Erdogan's re-election and the formation of a market-friendly team, has reinstated investor confidence, resulting in $4 billion in net inflows since June 2023. The increasingly popular Turkish lira carry trade, offering a 12% return in six months, has notably impacted Turkey, contributing to the Evli fund's performance and the realm of G-10 carry trades. The potential consequences include an upsurge in foreign investment in Turkey, a fortified Turkish lira, and potential inflation management. However, the sustainability of this trend hinges on Turkey's commitment to traditional economic policies and its capacity to mitigate inflation. Other emerging markets may encounter challenges as capital shifts towards Turkey, potentially leading to amplified volatility in those markets.

Did You Know?

• Turkish Lira Carry Trade: This trading strategy involves borrowing money at a low-interest rate in one currency and investing it in a high-yielding asset of another country's currency. In the case of the Turkish lira carry trade, investors borrow funds in a lower-interest rate currency, convert them into Turkish lira, and invest in high-interest-bearing Turkish assets. With a noteworthy 12% return over six months, the Turkish lira carry trade has become increasingly appealing due to Turkey's adoption of more conventional economic policies and higher interest rates.
• Evli Emerging Frontier Fund: This thematic equity fund concentrates on small-cap stocks in emerging markets, recording a striking 30% gain over the past year. The fund's managers, Ivan Nechunaev and Burton Flynn, have showcased optimism and neutrality, respectively, towards Turkish small-cap stocks, with investments in companies like Escort Teknoloji and Orge Enerji.
• Turkey's Adoption of Conventional Economic Policies: After President Recep Tayyip Erdogan's re-election and the selection of a market-friendly team, Turkey has begun implementing more traditional economic policies. Notably, the Central Bank of the Republic of Turkey has raised its policy rate to 50%, revitalizing investor confidence and attracting a substantial $4 billion in net inflows since June 2023. This policy transformation aims to alleviate inflation and promote economic stability, rendering Turkish small-cap stocks more enticing to investors.