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Want to buy the Turkey dip? Maybe you should look at Russia instead

It is too early to buy Turkish assets, despite the rout in the lira and stocks that followed last week's failed coup, Renaissance Capital said in a report on Friday.

Instead, the emerging market-focused investment bank advocated investors look at Russia.

"In an environment (in Turkey) where it is tough to argue the worst is over, valuations alone need to justify any case to bottom fish. We suggest an oversold lira and 15 percent potential upside to historical lows is the target. We are not there yet on either count," analysts Michael Harris, Daniel Slater and Vikram Lopez said in the report.


Turkish solders at Taksim square as people protest against the military coup in Istanbul on July 16, 2016.
Ozan Kose | AFP | Getty Images
Turkish solders at Taksim square as people protest against the military coup in Istanbul on July 16, 2016.

The Borsa Istanbul 100 index has declined by around 12 percent since last Friday, when the Turkish military attempted the takeover. The lira has fallen by roughly 6 percent against the U.S. dollar since then.

"Most 'buy the dip' opportunities in Turkey occur post one-off shock events/risk-off. With the state of emergency providing (President Recep Tayyip) Erdogan legal carte blanche for three or six months, a post-event return of comfort is unlikely to materialize until it is clear that Erdogan's choices cause no permanent damage to the Turkish outlook," Renaissance Capital said.

The analysts said Russia might be a better risk-reward play than Turkey this quarter, assuming global interest rates remained low following last month's vote by the U.K. to quit the European Union.

"If we are right that risks surrounding Brexit continue to keep global rates lower for longer and support a global yield bid then — barring a collapse in oil prices — we would argue that Russia is a less risky place," they said.

The International Monetary Fund updated its outlook on Russia on Tuesday. The Russian economy is now seen returning to growth in 2017, with expansion of 1.0 percent forecast.