Sergei Strigo answered AA correspondent’s questions about their recent investments in Turkish lira bonds and developments in the Turkish economy.
Stating that their approach towards Turkish assets continues to be positive, Strigo expressed that they believe that current economic policies and the team implementing these policies are reliable.
Strigo explained that on the bond front in Turkey, the Turkish lira and shorter-term Turkish local bonds are particularly attractive, and that the yield curve has largely inverted.
Stating that short-term positions provide significant returns for investors, but the long-term yield curve has also improved significantly, Strigo said, “We want to see signs that inflation will fall significantly so that we can increase our investments on this side. Inflation has currently fallen more than expected. With inflation falling, we will need to see if the long-term yield curve will become a little more attractive. Right now, our view on investing in Turkish assets is more in the medium term. We think Turkish assets, especially TL, are attractive.”
“We expect the views on the Turkish economy to continue to be constructive”
Stating that they plan to maintain this position for the next few months, Strigo continued his speech as follows:
“The attractiveness of the financial return allows us to have a more medium-term perspective of 6 to 12 months. We had this maturity in mind when we made our TL investments and our view has not changed. If we see more positive macroeconomic data, we can really increase our investments in Turkish assets with the same maturity. On the other hand, if we bought a one-year bond, this does not mean that we will completely leave Turkey after a year because we can probably buy another one-year bond. This is an instrument choice and our current view on these is medium-term. This means that our investments will remain in the country for a while. The increase in this and our investment period will depend on the continuation of the market-friendly macroeconomic policies that we are currently very pleased with.”
Stating that views on the Turkish economy and Turkish assets will continue to be constructive as reforms continue and macroeconomic indicators such as inflation gradually improve, Strigo said, “Frankly, we have seen significant credit rating increases recently and we believe there will be more to come at this point.”
“CBRT IS MANAGING THE PROCESS CAREFULLY”
Strigo also conveyed his expectations regarding the policy rate decisions of the Central Bank of the Republic of Turkey (CBRT), and emphasized that an early reduction in the policy rate could cause concern, but that the CBRT was acting extremely cautiously in managing the process regarding possible reductions in the policy rate.
“If the sharp downward trend in inflation continues, then the CBRT will have room to lower interest rates from its current high level. Once the CBRT finds that space, I don’t think the market will panic over the rate cut,” Strigo said.
Stating that he expects the CBRT’s monetary policy decisions to be data-dependent, Strigo noted the following:
“It’s hard to say how much and when that will happen. If we start to see a significant downward trend in inflation as markets are expecting, it’s possible that inflation figures could fall a little bit more next year. That will also depend on the global economy and a number of other factors.”
YEAR-END INFLATION EXPECTATION IS 40-45 PERCENT
According to Amundi’s analysis, inflation in Turkey is expected to fall to 50 percent in July and August. After this level of inflation, the disinflation process is expected to follow a slightly more moderate course and inflation is expected to fall to the 40 to 45 percent band by the end of the year.
In its report published last month, US investment bank JP Morgan lowered its year-end inflation forecast for Turkey from 43.5 percent to 42.5 percent and its inflation forecast for the end of 2025 from 25.2 percent to 25 percent.
While US-based Goldman Sachs expected inflation to decline to 36 percent by the end of the year, the other major US bank, Morgan Stanley, lowered its year-end inflation forecast for Turkey from 43.4 percent to 42.4 percent, and predicted that inflation would be 25.2 percent by the end of 2025.
British bank Barclays lowered its inflation forecast for the end of the year from 44.5 percent to 44 percent, and predicted that inflation would be 30.8 percent by the end of 2025.
Deutsche Bank analysts also announced that they foresaw a strong disinflation process by the end of the year and expected inflation to decline to 40 percent.
SIMILAR STATEMENTS FROM PIMCO AND VANGUARD
Recently, other asset management companies, as well as Amundi, have been showing a positive approach towards Turkish assets.
Vanguard, the world’s second largest asset management company with a portfolio size of approximately $7.5 trillion, announced in January this year that they had decided to re-engage in TL-denominated government bonds and reported that they saw a good performance period in local bonds that could complement their TL positions.
US-based Pimco, with a portfolio size of $1.9 trillion, also announced that they viewed Turkish assets, especially TL-denominated assets, positively.
