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Corruption Scandal Causes Turkish Markets To Tumble

ByDanske Markets
Published 01/02/2014, 05:58 AM
Updated 05/14/2017, 06:45 AM

Our recommendation to buy TRY/DKK (Trade #8) from FX Top Trades 2014 was stopped out at 2.5885 on 26 December 2013 for a 2.83% loss (incl. positive carry of 0.29%; opened at 2.6750). Spot now: 2.51.

The corruption scandal in Turkey, which flared up mid December, has led the Turkish markets and TRY to tumble. In Flash Comment Turkey: Corruption scandal shakes Turkish markets we stress that the situation is highly volatile and that prime minister Recep Tayyip Erdoğan’s AK Party is under very significant pressure, implying we would no longer rule out the possibility that he could be forced to step down. Hence, political uncertainty has increased very significantly and this could weigh on Turkish markets for some time to come.

That said, it should be noted that the recent sharp sell-off in the lira means that the currency is beginning to look undervalued. Furthermore, inflation expectations have increased significantly and it is becoming more and more likely that the Turkish central bank will act more aggressively to curb the sell-off in the lira, for example with a fairly aggressive rate hike. This is reflected in the Turkish fixed-income markets where bond yields have risen sharply.

An overview of performance of our overall FX Top Trades 2014 below; open trades overview on page 2.

To Read the Entire Report Please Click on the pdf File Below.

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