For investors Turkey looks half-baked while Greece is zipping along

Very different outlook for the two Mediterranean neighbours over the coming year

A man leaves Turkey's Central Bank headquarters in Ankara, Turkey, April 19, 2015. REUTERS/Umit Bektas - D1AESZQEYZAA
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The case for returning to Turkish assets after this year’s sell-off may be growing, but there’s no shortage of risks investors must weigh before taking the plunge in 2018, while in neighbouring Greece a potential property market boom is drawing a wave of investor interest.

“2018 is going to be another volatile year in Turkish markets,” says Per Hammarlund, the chief emerging market strategist at SEB in Stockholm. “Any change in the outlook for global monetary policy will have an outsize impact on Turkish bonds and the lira.”

The Turkish lira has not been this cheap relative to its trade partners in more than a decade, local bonds boast some of the highest nominal yields among major economies and stocks are trading near the widest discount to other emerging markets in more than eight years.

To counter that, inflation is more than double the central bank’s target, relations with western allies are strained and there’s a prospect of early elections, something the ruling AK Party has repeatedly ruled out. Those are among the reasons Turkish assets are among the most vulnerable to shifts in appetite toward emerging markets.

Here are some events and issues that will be critical for investors looking at Turkey:


With price increases running at the fastest pace in 14 years, investors are assessing how serious the central bank is about containing further deterioration.

Authorities expect inflation to slow early in 2018, aided by favourable base effects. But, with the key rate around 25 basis below headline consumer price growth, investors remain concerned monetary policy is being dictated by political concerns and remains too loose.

The next big measure of whether the bank is prepared for bold action is its January 18 meeting. JP Morgan says another 50 basis point increase in likely.

“Foreign investors want to be invested in Turkey, but it is this unfortunate loss of confidence in central bank independence that’s keeping them away,” says Simon Quijano-Evans, an emerging-market strategist at Legal & General Investment Management. “Turkish local currency bonds have huge potential for catch up in 2018, but that really needs the central bank to get on top of inflation.”

New York Trial

The high-profile court case of Hakan Atilla, the Turkish banker accused of conspiring to evade US sanctions on Iran, threatens to continue to weigh on Turkish markets as investors fret that revelations in the trial will lead to penalties on the nation’s banks. Turkish officials, including the president Recep Tayyip Erdogan, have said the case is an attempt to undermine Turkey’s economy.

“There is the risk that the US imposes fines,” says William Jackson, a senior emerging-market economist at Capital Economics in London. “It is unclear what the likelihood of this is and how big the fines could be. But were they to be imposed, it could hurt the equity market and possibly lead to a pull-back by foreign investors.”

Relations with the West

The trial also threatens to exacerbate tensions between Turkey and its Western allies. Relations deteriorated in 2017 amid criticism over a crackdown on political opponents in the wake of the foiled coup in 2016 and wrangling over policy responses to the Syrian civil war.

While the US eased a visa ban against Turkey imposed after the arrest of some of its consulate staff, its refusal to extradite Fethullah Gulen, a preacher that Turkey blames for the coup attempt, suggests there may be no quick solution to the stand-off between the longtime allies.

Mr Hammarlund, relations with the U.S. and the European Union will continue to be unpredictable. “The Atilla trial may turn out to be less damaging than feared, but the US refusal to extradite Fethullah Gulen, Turkish treatment of US embassy personnel, and the status of Jerusalem could still be sources of friction.”

Local Politics

Early elections could introduce yet another element of uncertainty. While Mr Erdogan said the government does not have plans to bring forward local and general elections scheduled for 2019, many investors believe that if economic growth remains strong, he will seek to capitalise on that momentum.

“If the economy and his popularity domestically is strong, he may decide some point next year to call an early election and that will introduce political uncertainty and risks for the market,” says Paul Greer, a London-based senior trader of emerging-market debt at Fidelity International.


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Growth Pace

The economy is set to slow next year - and that’s a good thing for Nomura’s London-based economist Inan Demir, who has seen signs of overheating.

A “slowdown can help address the inflation and current-account problems", he says. “The important point is if the government and policymakers will allow it to slow down or not.”

Turkey’s economy is back on its feet and no longer needs the stimulus program introduced after the coup attempt, a senior adviser to Mr Erdogan said after growth surged to 11.1 per cent in the third quarter.

But expectations for new stimulus measures are already growing. The QNB Finansbank chief executive Temel Guzeloglu has said he expects the limit on the credit guarantee fund, which backstopped a borrowing boom this year, will be increased to 300 billion liras (Dh286.45bn) from over 200bn liras used so far.

Meanwhile, across the Mediterranean in Greece, the real estate sector paints an altogether rosier picture.

George Kachmazov, a Russian estate agency, is among investors snapping up property in Athens.

The Moscow-based chief executive of the real-estate platform has bought a building in the Greek capital and is in the process of acquiring five others with a view to selling apartments to international investors. For Mr Kachmazov, the sales pitch is clear: buying property in Greece can give an investor a so-called golden visa to the country - and with it an entree into much of Europe. What’s more, the country’s real estate market may be poised for a rebound, helping buyers make some money on their purchase.

“Greece’s real estate market is one of the remaining few in Europe that hasn’t recovered since the 2008 economic crisis,” says Mr Kachmazov in Athens. Prices in Spain, Portugal, Ireland, Poland and Hungary are heading toward pre-crisis levels because of high liquidity in Europe, he adds.

Mr Kachmazov is among agents making a beeline for Greece to help property hunters from Russia, China, Turkey and elsewhere bet on a market that may be on the cusp of a revival as the country exits its bailout programme in August 2018. Property prices in Greece have fallen more than the 25 per cent contraction in the economy since Europe’s sovereign debt crisis began in 2008. Prices of apartments in Athens more than five years old shrank by 45 per cent between 2008 and June 2017, according to Bank of Greece data.


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“The belief is that the worst is over and that this is a good time to take advantage of the low prices and to benefit from future capital gains as the market recovers,” says Carrie Law, the chief executive of, a Chinese international property website. Juwai this year signed an agreement with Warren Buffett’s real estate brokerage firm to advertise homes in the US.

The average price per square metre in Greece is €2,846 (Dh12,413), according to the Germany-based statistics company Statista. That is almost €1,000 cheaper than Portugal, which has a similar golden visa programme for property buyers, one and a half times cheaper than in Spain and Germany, and almost three times cheaper than in Italy and Austria. Greece is more expensive than Bulgaria, Croatia, Romania and Estonia.

While Mr Kachmazov’s targets are mainly Russian investors, they also include Turks, Arabs and Chinese buyers who want a golden visa for access to the European Union’s passport-free Schengen area and who want to “diversify away from local risks and get an income in hard currency” by renting apartments out to tourists or students.

“The country’s residence-for-investment scheme is the best in Europe as it’s cheap at €250,000; property in Greece is cheap; yields for short-term rentals are high, and the country’s growth potential is greater,” Mr Kachmazov says.

In Portugal, an investment of €500,000 in any real estate project or of €350,000 in a 30-year-old property can get you a resident permit under certain circumstances.

Another draw for investors is the returns they can make from their Greek property. The country’s tourism industry is stoking an increase in demand for short-term rental properties, which combined with “significantly” low property prices, means there’s an opportunity to generate high rental yields and capital gains, says Mr Kachmazov. Visitor numbers in the nine months to Sept. 30 rose 10.3 percent from the same period of 2016, according to the Bank of Greece.

Property inquiries in Greece from Chinese buyers rose almost 159 per cent in the third quarter compared to the same period of 2016, Ms Law says. For Chinese investors, getting a resident visa is the key reason to invest in the country, she says.

“It’s one of the more lax visas that allows you to use property investment to get yourself onto the path toward EU citizenship,” Ms Law points out. Additionally, Greece is three to four hours closer by air to China than Barcelona and Lisbon, two other popular cities in countries that also have appealing investor visas, she says.

Greece awarded 2,053 golden visas between 2013 and October 2017, with Chinese investors accounting for 43 per cent of them, according to Enterprise Greece, the state agency responsible for promoting investments and exports. Russians are in second place with 18.6 per cent and investors from neighbouring Turkey third at 8.4 per cent. Greece has raised more than €513 million in foreign investments from the visa programme.

Both Mr Kachmazov and Ms Law says there is a great deal of interest in properties that Greek banks are auctioning as part of efforts to shrink non-performing exposures. Lenders are trying to meet bad loan reduction targets to avoid raising capital.

“We aim to participate in Greek real estate e-auctions and to acquire properties directly from banks,” says Mr Kachmazov.

Ms Law says she is seeing similar interest. “We have some buyers who are very interested in Greece’s e-auction process.

“They believe it will offer opportunities to purchase at the bottom of the market.”