What To Buy To Benefit From Low Oil Prices. Part One: Turkey


Chris Wright

We know the countries that are set to suffer from low oil prices: Russia, which this column has frequently discussed, is in a world of trouble; Nigeria, which has had to devalue its currency; and Venezuela, which hardly needed another reason to fall into turmoil but now has one, and is likely to default on its debt soon. But who wins from all this? Which are the countries that come out stronger in a weak oil price environment, and will their stocks and debt climb too?

In this sequence of articles, we look at three countries set to benefit: Turkey, Indonesia and India.

The fall in the oil price, says Selim Yazici, head of Turkish equities at BNP Paribas Investment Partners, “is the best thing that can happen to Turkey. Every $10 drop in the oil price improves the current account deficit by $4.5 billion.”

Turkey is an interesting market in that fund managers and economists tend to have rather schizophrenic attitudes to it. Not long ago it was an emerging market darling; then a pariah, one of the so-called Fragile Five or BIITS that were so badly hit when the Federal Reserve first started talking about raising rates last year; now, it seems to be in favour again. A low oil price is central to this revival, and is one of the main reasons that Turkey’s current account deficit is expected to improve from 8% in 2014 to 5% in 2015, according to Citi Global Research. A falling price is not the only reason – Turkey’s reliance on oil imports, though considerable, is likely to drop somewhat after a discovery in the Black Sea – but it all helps.

Alongside other useful developments like limitations on consumer credit, there is a sense that a lower oil price burden is beginning to be reflected in the economy. Inflation has been a major bugbear in Turkey this year, and still stands at above 9%, but is forecast to fall to around 7% next year, which would at least be progress. That, in turn, is likely to see a cut in interest rates, which Turkey famously doubled at a stroke last year in more troubled times. “The fiscal standing has always been good,” says Yazici. “Public debt is coming down and expected to fall to 30% [of GDP], the budget deficit is around 1%, and although growth is slow, it can still be 3-4%, which compares well to the rest of the world.”


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