Turkish Lira v South African Rand

There has never been a chart pattern idea for swing traders on this blog. Even if I always been skeptical about the chartist stuff, I admit that from time to time it would be a guide for currency markets where fundamentals tend to change slowly and usually liquidity matters.

And if you’re familiar with emerging markets currencies, you must have realized Turkish lira and South African rand moving very similar ways. The data shows that the TRY/ZAR currency pair hardly ever diverges by more than 5% (in absolute terms) from its 20-day moving average.

Lira Rand Chart

If you read the post until this point, then this is where I wish you good luck.


You can the find the updated chart below and keep enjoying our posts filled with the trader’s post-traumatic stress disorder.


Turkish Stocks: Banks v Industrials

One of the key market themes that marked this year has been the bank stocks trading with low multiples and the advancement in the industrials. Time and time again we uttered that the golden age of Turkish banking is over (see here and here) which was finally embraced by a top banker in Turkey. Given the banks capturing a dominant share of the Turkish stock market the BIST 100 index has expectedly performed poorly.


We also have seen the ratio of the Turkish banking index (BIST:XBANK) to industrials index (BIST:XUSIN) falling below 2 this year which may have seemed like an anomaly from a historical perspective. A part of analysts attributed this to the start of a bear market while the other part mentioned a changing overall market trend. Despite the fact that I have been long-term bear and clearly recommended investors to avoid from risky Turkish assets (and EM in general), I also believe the upheaval in Turkish market has begun forcing investor to be extremely selective to be able to make a winning pick.

Turkish Stocks Volume - Banks v Industrials

Turkish Stocks Valuations - Banks v Industrials

Interestingly, according to volume data the dominance of the banks are likely to continue. This may require the fund managers moving to a set of unconventional investment strategies such as smart-beta from typical index investing as hoping and holding bank stocks leave investors face a potential long-term bear market.

Do Turkish Dividend Stocks Outperform in Bear Markets

It is not a secret that dividend-paying stocks often come out ahead during a market sell-off. Because many investors are attracted to the safety appeal of them. As Turkish stock market is hanging around record high levels with foreign capital outflows on the horizon due to expected rate hikes by the US Federal Reserve, it is much closer to enter a bear market this year. Under these conditions one may think that high-yielding Turkish stocks will be seen as a defensive play in bear market in order to protect the value of portfolio, or to surrender a more tolerable loss at least.

This is where we are getting straight to the point. First of all, we determined three bear market periods that averagely last seven months. During these periods Turkish equities benchmark index (known as BIST 100) declined 47.6%, 31.2%, and 41.5%, respectively (see the chart below). Then out of blue-chip Turkish stocks we pick the five highest dividend-yielding stocks for the period of one year to each bear market periods. Ultimately, we compare the returns of the benchmark index and our  picks to see how we would have done in the bear markets with the five dividend stocks using a buy-and-hold approach.

Turkish Stock Market - Bear Market

Our stock picks based on the hold-and-buy the highest dividend-yielding Turkish stocks strategy totally include 11 different stocks and are in accordance with the list which follows: FROTO (Ford Otosan), AKCNS (Akcansa Cimento), CIMSA (Cimsa Cimento), PNSUT (Pinar Sut Mamulleri) BOLUC (Bolu Cimento), TTKOM (Turk Telekom), TUPRS (Tupras Turkiye Petrol Rafinerileri), TTRAK (Turk Traktor), AYGAZ (Aygaz), DOAS (Dogus Otomotiv), NTHOL (Net Holding). In a sectoral breakdown the dominance of industrials and utilities are strikingly clear.

Below shows how our play would result.

Turkish Dividend Paying Stocks Performance

In two of three bear markets, our strategy seems to be beating the market by generating comparatively lower losses. However, in 2008 it generated a negative alpha of 12.1% amid the global financial turmoil. Also in 2011’s bear market the success of the strategy is mostly due to stocks correlating weakly with the overall market return. In additionally the strategy seems to be at its best with an excess return of 20% roughly. Eventually in 2013’s bear market following the Gezi protests and the US Federal Reserve’s first rate hike signal, and continuing with 17 December graft scandal, our stock picks drop by 27.7% averagely while the BIST 100 is down 41.5%.

In conclusion we can say that Turkish dividend stocks may save you in a bear market after reviewing the evidence. Picking safe dividend stocks in a mature bull market where a whiff of change is not that far seems like a considerable strategy to run as well as a further research is absolutely necessary to decide correctly.