Emerging market risks, Turkey & Koc Holding

Emerging markets stocks are risky. This is not a very original insight but a pretty well-known fact. Among the obvious risks compared to most “developed” countries are:

– general legal risks (listing, disclosure, property rights)
– volatility of economy
– currency
– general political instability

Following the Sistema story, I would add another significant risk for any Emerging market based company:

– personal disputes between a controlling shareholder and the current government

That this risk is real can be seen very well in Turkey at the moment at Asya Bank. Asya Bank is supposed to be owned or influenced by the major Erdogan enemy, the Gulen movement. What is happening in Turkey, at least from my perspective is pretty unique: The Government is more or less actively trying to bankrupt a private bank because the owner of the bank is opposing the current government:

Investors have dumped stocks and bonds of Istanbul-based Bank Asya as the lender was dragged into a feud between President Recep Tayyip Erdogan and Fethullah Gulen, the Pennsylvania-based Islamic cleric who Erdogan blames for a graft probe that implicated his government in December. The president this week called for Turkey’s banking regulator to take action on Bank Asya, citing deteriorating finances.

It seems to be that Erdogan has become much bolder since he won the election a few weeks ago and seems to care less about any negative short-term impacts on the economy.

Honestly, that made me pretty nervous with regard to my largest EM based investment, Koc Holding. I am not completely sure if everything is well now between Erdogan and the Koc family. There were already several probes against Koc companies, the latest I found was against subsidiary Turpas in July 2014.

The big question is always: Am I getting paid for the risk I am taking ? In Koc’s case, especially after the nice run up in the share price, I am not so sure anymore.

Koc is now trading at around 11 times 2014 profits, which is in line with the overall Turkish stock index. Although I believe that Koc is a far above average quality Turkish company, the individual political risk is much higher than for the general Turkish market.

In my initial post, I wrote the following:

I am clearly no expert here, but the fact that the Koc family, among others, survived 3 military coups, the second world war and hyperinflation, the probability is maybe relatively high that they survive the current episode, but risks are clearly there.

Following the Asya story however, I got much more cautious and in EUR terms, Koc is almost 40% more expensive since I bought them. It could easily be that I am too cautious here, but I am not sure if I get actually paid for this Koc related “relationship” risk when I hold Koc stocks at the current level, especially with a portfolio weight of around 3,5%. If I compare this for instance with MIKO or Hornbach, I can still invest in a nice “Boring” stock at the same level without the very specific and real risks of Koc in Turkey.

As a consequence, I will reduce my stake by more than 2/3 to a 1% level which for the future will be my maximum exposure per position to any single Emerging market based company.


  • Auch wenn ich persönlich bei unveränderter politischer Konstellation weder in der Türkei noch in Russland investieren würde, erschiene mir ein generelles Maximum von 1% pro Emma-Position als zu gering, es sei denn, das Portfolio umfasst insgesamt weit über 50 Werte.

    Gerade wenn (alt-)europäische und US-Unternehmen teuer sind, könnte der eine oder andere Emma günstig sein. Im Frühjahr 2007 war Thailand so ein Beispiel. Während S&P 500 und Dax toppten, notierten in Bangkok schuldenfreie Unternehmen mit einem ROE von jeweils 16%, einer Div.rendite von 4% bzw. 8% und zudem ein stetiges Wachstum über Jahrzehnte aufweisend. Qualität kam dort auch 2008 nicht unter die Räder.

    Koreanische Unternehmen kosteten im Sommer ’98 nur einen Bruchteil vergleichbarer westlicher Werte. Sicher waren dort die Unternehmensschulden ungewöhnlich hoch. Was aber, wenn diese vor allem in Won notierten, also eine Währung, deren Wert sich gerade halbiert hatte, und wenn da ein export-fokusierter Weltmarktführer war?

    Die Tequila-Krise in Mexiko Ende ’94 / Anfang ’95 ist ein weiteres Beispiel.

    Spezielle Risiken gibt es gleichwohl etliche. Unter anderem halte ich wegen generell möglicher Kapitalverkehrskontrollen die jeweilige Handels- und Zahlungsbilanzen im Auge.
    Wenn jedoch in Staaten, die Eigentümern ausreichend Rechtssicherheit gewähren, echte Werte fast umsonst zu haben sind, würde ich mir keine 1%-Grenze setzen, aber dies soll natürlich keine Empfehlung für andere sein.

    • #Welju,

      EM Aktien sind für mich nur ein relativ kleiner Teil. Zukünftig werde ich mir noch stärker Ajtien mit Sitz im “Westen” aber viel EM Exposure anschauen, wie z.B. Ashmore.


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