After the rally, Turkey's stock market waits to see what's on offer

By bne IntelliNews November 9, 2009

Bernard Kennedy in Ankara -

The Istanbul Stock Exchange (ISE) dished up a remarkable rally in 2009. The fare will be more frugal in 2010, though, with privatisation plays and IPOs probably proving the best picks.

Investors have been in two minds since the ISE-100 index climbed above the 50,000-point mark in late October, which compares with little over 21,000 points in the crisis atmosphere of November 2008.

Share prices have continued to benefit from expectations of a recovery in the US economy, a new stand-by loan deal with the International Monetary Fund and sovereign credit rating upgrades. The European Commission's autumn forecasts tip Turkey to achieve higher GDP growth than any country in the EU and the Western Balkans in 2010, at 2.8% following the 5.8% contraction seen in 2009. Meanwhile, the Turkish central bank seems in no hurry to reverse its easing bias, which has seen it lop 1,000 basis points off its main policy rate in less than 12 months. The rate now stands at 6.75% compared to 5.1% consumer price inflation.

Bulent Yurdagul, research chief at HSBC Securities in Istanbul, believes equity valuations could rise further. For industrial companies, he argues, 2010 could see an exponential recovery in operational earnings. And while the banks will no longer enjoy windfall profits from tumbling bond yields, he points out the banking system price/earnings ratio remains in single digits.

Equity strategist Arzu Odabasi of Global Securities, by contrast, expects selling pressures to dominate over the next six months. All the good news was priced in as of late October, she believes, and a retreat to 40,000 points can't be ruled out.

Onur Marsan, equity strategist at Garanti Securities, meanwhile predicts a "more stable" year on the ever-volatile, yet evermore-liquid, exchange in 2010. Nevertheless, Marsan agrees, it is time to "pick stocks with stories" and buy on the dips.


Energy could be one major story. The government is set to press ahead with the auction of regional power distribution monopolies, which could have potential benefits both for energy stocks (Zorlu Enerji, Ak Enerji, Ayen Enerji, Aygaz) and for the listed conglomerates that are likely to be among the bidders. Privatisation of the distribution function is intended to pave the way for the sale of numerous state power plants.

Attention will also be on the primary market. In the last week of October, Ran Lojistik, a little-known warehouser and road haulage company, recently became the first company to stage an IPO for almost 18 months. Ran raised just over TRY9m ($6m) in return for 25% of its capital.

In collaboration with the Union of Chambers, the ISE is seeking to attract more small and medium-sized companies, with the ambitious goal of tripling the number of stocks traded to 1,000. A new "developing enterprises" market, with simplified listing requirements, is to serve as a nursery for baby stocks.

The IPO pipeline includes more than minnows, though. Istanbul municipality has plans to cash in on its gas, water, sea transport and housing affiliates, while Ali Sabanci, owner of no-frills airline Pegasus, has announced his intention to sell shares to fund further expansion. Other market-leaders and household names leaders said to be considering IPOs include furniture manufacturer Istikbal, gold miner Koza, mobile phone distributor KVK, bus-maker Temsa and Sharia-compliant bank Kuveyt Turk. Several real estate investment trusts are also due to go public. "I believe there will be a string of IPOs in 2010," says Afif Sakir, director of Galata Securities, which managed the Ran Lojistik deal, "but whether they will be successful depends on whether they provide a sufficient discount."

HSBC's Yurdagul, too, has his doubts about the strength of demand: "I think we need a further pick-up. We may start to see the IPOs in the second or third quarter."

State stakes

The biggest fish are still in the public sector. IPO candidates from the private sector could be eclipsed if the government opts for secondary offerings in part-privatised companies such as Halkbank, Vakifbank, Turkish Airlines or the Petkim petrochemical plant as a way to finance its proposed TRY50bn ($33bn) budget deficit. Pipeline and gas company Botas is also in the frame. In the medium term, the government has pledged to make preparations for an IPO in Ziraat Bank, the largest bank by assets and the only one still 100% owned by the state.

The government's willingness to accommodate the markets on price was demonstrated in May 2008 when, with global financial markets already under stress, it off-loaded 15% of its residual 45% stake in Turk Telekom for $1.87bn. The national telephone company had taken great strides in mobile and broadband since a 55% stake was sold to Saudi interests for $6.55bn in 2005. And Turk Telekom could be back in the news soon. "The rumour in the market is that they want to make a secondary public offering if the current owners are not buying, which is probably the case," explains Yurdagul. "That could be the next big offering."

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