Twist of fate: Middle East fund managers shy away from Turkey, warm up to Egypt

Middle East fund managers are highly reluctant to raise their equity allocations in Turkey due to the political turmoil and currency volatility since a corruption and bribery graft of unprecedented magnitude within the government was exposed on Dec. 17 of last year, but they are optimistic about Egypt, a recent Reuters survey has shown. 

According to the survey of 15 leading investment managers conducted in the last 10 days, only 7 percent of fund managers in the Middle East expect to raise their equity allocations to Turkey, while 33 percent expect to reduce them. 

The survey reveals that some Middle East fund managers have shifted money from the United Arab Emirates (UAE) to less richly valued markets, and 53 percent expect to increase their equity allocations to the Middle East over the next three months. 

The survey also revealed great optimism about Egypt, even though its market has already jumped 61 percent since President Mohammed Morsi was ousted last July. Fifty-three percent of managers expect to raise their equity allocations to Egypt while only 7 percent expect to reduce them. Despite militant violence and pressure on state finances, investors are looking ahead to elections in Egypt this year which may help to stabilize politics and support an economic recovery. 

On the morning of Dec. 17, Turkey woke up to a bribery and corruption operation in which simultaneous operations were launched in İstanbul and Ankara after an investigation that included allegations of land being illegal zoned, bribery and money laundering. The operations, which were carried out upon the orders of the İstanbul Public Prosecutor's Office, resulted in the arrests of 49 people, including Barış Güler, the son of former Interior Minister Muammer Güler, Salih Kaan Çağlayan, the son of former Economy Ministry Zafer Çağlayan, Abdullah Oğuz Bayraktar, the son of former Environment and Urban Planning Minister Erdoğan Bayraktar, businessman Ali Ağaoğlu, Iranian businessman Reza Zarrab, Halkbank General Director Süleyman Aslan and Fatih Municipality Mayor Mustafa Demir. Bayraktar and Aslan were subsequently released. 

The Justice and Development Party (AK Party) government's poor management of the ongoing corruption investigation and the global impact of the US Fed's tapering accelerated the lira's slide, despite a massive interest rate hike by Turkey's central bank's on Jan. 28.