Setting aside TNT, uranium fuel rods and nitro-glycerine, in ETF land, there are few compounds that can give you the kind of white-knuckle ride offered by blockchain thematics – that was until Turkey gave monetary and political uncertainty a spin.
On Monday, the iShares MSCI Turkey UCITS ETF (ITKY) had almost 8% slashed off its valuation after incumbent President Recep Tayyip Erdogan secured 49.5% of the vote after the first round on 14 May.
Just two trading days prior, the ETF bounced 9.4% in a single session as investors bet opposition candidate Kemal Kilicdaroglu would win the presidency.
It is expected the challenger candidate would restore Turkey’s central bank policy to something more closely resembling monetary orthodoxy after it slashed interest rates from 19% to 8.5% last year, sending inflation skyrocketing to 84.4% by November.
However, failure by any party to attain a decisive advantage last weekend will see a run-off election take place on 28 May.
Should Kilicdaroglu fail to drum up momentum to advance his current 44.9% share of the vote, Turkish equities could be set to free-fall with the 20-year incumbent Erdogan playing fast and loose with monetary policy.
Prior to the election, Turkey’s headline BIST 100 index had collapsed 21.8% this year, as at 5 May, despite efforts by the Turkey Wealth Fund to buoy the market via $1bn of investments in Turkish equity ETFs in February.
The steep decline continues as the country’s central bank now asks banks to hold 60% of their deposits in lira to stimy the shift to foreign currencies in recent years.
To drum up lira deposits, Turkish bank deposit rates have spiked from 10% to as high as 29%, with lira depreciation shielding account rates doubling to more than 20%, a shift that has sparked an exodus in Turkish equities as retail investors move to park their money in cash deposits.
This comes in stark contrast to last year, where 84% inflation and a 36.5% lira depreciation against the US dollar saw investors pile into domestic equities in a desperate attempt to preserve their wealth, with the number of trading accounts jumping 32% in 2022.
This rush to invest caused the BIST 100 to soar 170.9% and Turkish ETFs to claim the top-performing end of returns tables last year.
Now, Borsa Istanbul data reveal daily trading volumes have roughly halved to $2.5bn while foreign ownership of Turkish equity has halved to 29% since 2019.
Regardless of who wins the presidency, a period of monetary smooth sailing and thoughtful policy is probably what individual Turkish citizens are calling for. If some level of normality is restored, JP Morgan strategists suggest foreign investor ownership of Turkish stocks returning to 50% would add $20bn to the market.
Asterix and Obelix
Though not as amusing as the hijinx of France’s favourite animated duo, Amundi and Lyxor ETFs have proven quite the partnership since Amundi completed the acquisition of Société Générale’s ETF business last January.
The combined firm recently announced its latest three product merges including bringing together the respective euro and dollar-denominated interest rate hedged products to create Europe’s second and third-largest floating rate bond ETFs.
In a month where the asset manager has merged a total of six ETFs, Amundi also fused its US Treasury bond ETF range, creating a product line housing $1.6bn assets under management (AUM) and halving fees to just 0.07%.
Recent mergers are just the latest in a string of streamlining efforts by the firm. In February, it merged the Amundi and Lyxor STOXX 600 ETFs to create a $6.3bn strategy, the second-largest ETF tracking the index.
In January, it merged Lyxor’s North America and S&P 500 ETFs to create a product housing $7.5bn. If combined with Amundi’s S&P 500 ETF, the resulting product would claim $14.1bn assets and be within a stone’s throw of the Invesco S&P 500 UCITS ETF (SPXS), Europe’s third-largest ETF tracking the index.
The Iberian target market
A recent survey of 16,542 European adults by BlackRock and YouGov found the number of ETF investors in the continent could jump 32% in the next 12 months, with Iberia highlighted as the key growth hotspot.
The peninsula made up of Spain, Portugal, Gibraltar and Andorra was found to have over one million potential investors set to enter ETFs, representing a 64% increase from current levels.
The region currently has among the lowest penetration rates for ETFs in Europe as Spanish-listed ETFs are subject to capital gains tax while mutual funds are exempt under the Traspasos regime.
European ETF leader Germany is also expected to see two million new ETF investors in the next year, with the rapid of expansion of online distribution via platforms such as Scalable Capital powering the 22% growth forecast for the next 12 months.
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