Too soon to add exposure to Turkey

Turkish policies have revealed a little light, but the economy remains deep in the woods. There have been some positive developments over the past three months, including the start of the vaccination programme and some normalisation of the monetary policy. These steps, combined with relatively bullish EM sentiment, restored some confidence among investors who promptly increased exposure to Turkey – its sovereign USD bonds rallied by 13.3% in the last three months of 2020, one of the best performers in EM. But creditworthiness remains in dire straits; FX reserves have fallen to critical
levels, while the government is facing large external debt payments this year.

What you will learn:

  • At this stage, we would not follow the market by adding exposure to the country. We remain market neutral on Turkish hard currency bonds.
  • Investors have been buying Turkish assets in the wake of a radical U-turn in monetary policy aiming at curbing inflation and rebuilding FX reserves.
  • Reserves have fallen to critical levels though, and we are not convinced just yet that the new monetary policy will be sustained. Besides, despite an improving external position this year, FX reserves could still be under pressure.

Topics: Investment

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