Istanbul, a city which never fails to impress with its rich history, culture and hospitality, has also shown some remarkable resilience in navigating challenging economic times. Foreign currency is flowing into the city, at the markets and retailers, but what is most evident is the foreign currency investment in real estate; Istanbul, a city with 15.5m people, appears to be bursting at its seams.

However, an economic crisis is looming in Turkey – extreme currency depreciation, high inflation and an unorthodox economic policy by the incumbent leadership that continues to cut interest rates. These aspects, combined with the political uncertainty as the country heads into elections next year, has made planning and forecasting difficult for most companies and economists.

The Turkish lira has depreciated over 50% against the US dollar in the last year and is now at an all-time low. Concerns over inflation, the Russia-Ukraine war and economic instability are exacerbated by skyrocketing inflation and expansionary monetary policy. Managing foreign currency risks has been one of the biggest worries for companies this year. Even small businesses such as market vendors and taxi drivers prefer to be paid in US dollars or euros over lira.

Despite the currency crisis and cutting interest rate regime, banks are in good health. They are adequately capitalised and non-performing loan (NPL) ratios are within reasonable levels. There is a desire to cap their lending activity. Banks are required to buy long-duration fixed-rate government bonds, thereby increasing their borrowing costs. FX-indexed deposit schemes that assure customers of a return equivalent to a fixed rate plus the rate of TRY depreciation are being offered to attract Turkish lira savings into the system.

Real estate, too. Beyond the minarets of the mosques, Istanbul is a city of cranes. Construction is omnipresent. Istanbul’s new and modern airport is one of the world’s largest, and the city’s recently built gargantuan mosque can hold more than 60,000 worshipers.

Corporates are adapting to the current economic circumstances. They have started increasing their exposure to export business, improving technological and manufacturing efficiency through foreign collaborations, and made rising investments in renewable energy key priorities. It is heartening to see the excellent reporting of Turkish companies and the growing adoption of sustainable practices and reporting.

Small- and medium-sized enterprises form the backbone of emerging economies. In Turkey, such enterprises are generally still in good health despite the mounting challenges they face. Their balance sheets remain robust with buoyant tourism and growing exports continuing to drive demand for their products and services.

One sector which has now become a major source of foreign currency revenue for the country is medical tourism. The advanced medical technology and quality talent available at lower rates are attracting medical tourists, especially from Eastern Europe and the Middle East, for medical and cosmetic procedures.

Investors willing to cast their eye over the Bosphorus can find good value and highly-innovative businesses which are led by excellent management teams. We believe in times of crisis investing in fundamental quality – companies with pricing power, strong balance sheets, little to no debt and leading brands and with experienced management teams – becomes even more important.

Low debt levels provide companies with resilience against the impact from rising debt servicing payments, while a strong, ‘sticky’ brand and pricing power should enable them to pass on input price increases to their customers. Additionally, an experienced management team that has been through numerous economic cycles should be well equipped to navigate unsettled waters.

Furthermore, in Turkey businesses that earn revenues in hard currency will profit from the current macro environment. In our opinion, for diligent stock pickers there are hidden gems to discover in Turkey despite the challenging macro-economic circumstances the country currently faces.

Carlos Hardenberg is portfolio manager of Mobius (MMIT ) investment trust with Mark Mobius. Any opinions expressed by Citywire, its staff or columnists do not constitute a personal recommendation to you to buy, sell, underwrite or subscribe for any particular investment and should not be relied upon when making (or refraining from making) any investment decisions. In particular, the information and opinions provided by Citywire do not take into account people’s personal circumstances, objectives and attitude towards risk.