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.

Turkish Stocks: Volatility and Returns

It recently has been with full of ups and downs in almost all financial markets. Dips and spikes certainly should have thrown many investors for a loop. As expected it has been the same in Turkish markets. After hitting the top over 80,000 at the end of August, the benchmark stock index fell by roughly 6%. During this period the index has experienced mini-rallies and some downfalls which has not able to last more than two trading days. This makes being selective unavoidable for investors. At this stage analyzing industrial indicators based on their returns with the consideration of the changes in volatility would be a useful tool to decide where the cash should been poured into.

 Turkish Stocks - Performance of Each Industry in 2014

The chart above presenting the year-to-date returns by industries includes two important eye catchers. First, metals have been considerably profitable investments since the beginning of the year. Second, as of mid-August miners began to see a huge drop in their market caps. Two mentioned industries have gone separate ways while others have performed in line with the market.

As discussed above, the beginning of September was a turnaround in the markets. We saw %8 pick-up in the volatility of the daily returns of Turkish stocks in September compared to previous month. In the meantime some significant industry-specific trends were to show up as seen in the following chart

Turkish Stocks - Returns and Volatility

Due to its horrible track record, miners are not featured on the chart with 0.8% of net change in volatility and -21.5% of return for the  32 trading days starting on September 1 and ending on October 17. Based on the results, only energy, textiles and metals appear to be investments that are in green territory at the end of the period while REITs are the worst performer. On the other hand the deviations in energy stocks that is dramatically larger make the industry not a blanket buy. Additionally, despite its poor performance, we have seen retails stocks drawing a clear picture with lower volatility. Eventually, according to these results, metals, textiles and retails seems to be offering the less risky returns. Below is the list of stocks in mentioned business listed among top 100 companies in Borsa Istanbul.

  • Metals: Borusan Mannesmann Boru Sanayi ve Ticaret AS (BRSAN) Eregli Demir ve Celik Fabrikalari TAS (EREGL), Izmir Demir Celik Sanayi AS (IZMDC), Kardemir Karabuk Demir Celik Sanayi ve Ticaret AS (KRDMD).
  • Textiles: Menderes Tekstil Sanayi ve Ticaret AS (MNDRS).
  • Retails: BIM Birlesik Magazalar AS (BIMAS), Bizim Toptan Satis Magazalari AS (BIZIM), Dogus Otomotiv Servis ve Ticaret AS (DOAS), Tesco Kipa Kitle Pazarlama Ticaret ve Gida Sanayi AS (KIPA), Migros Ticaret AS (MGROS), Teknosa Ic Ve Dis Ticaret AS (TKNSA).