After years of avoiding investing in Turkey’s volatile currency, Leonard Kwan is looking to trade the lira once more, on expectations orthodox monetary policy is making a comeback.
The lira is “entering the area where it becomes a realistic investment destination once again,” said Kwan, a Hong Kong-based money manager at T. Rowe Price Group Inc. which oversees $1.3 trillion. “On quite a few fronts, they’ve pivoted toward orthodoxy. Key for us at this point is the extent to which delivery of orthodoxy will be realized.”
Kwan’s views come at a crucial time for Turkey’s $900 billion economy: analysts are unanimous that the central bank will hike interest rates for the first time in more than two years on Thursday — the critical question is by how much. Traders are tapering expectations of aggressive hikes after Finance Minister Mehmet Simsek, a former investment banker, flagged he favored gradual moves to more conventional policies.
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The lira plunged to a record low against the greenback earlier this month after state-run lenders temporarily stopped dollar sales. The currency traded around 23.50 per dollar ahead of the central bank meeting and is down over 20% this year.
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Kwan, who helps manage T. Rowe’s Dynamic Emerging Markets Bonds Fund, said he’s inclined to invest in the lira when there’s more evidence that policy orthodoxy is here to stay. For lira bonds, “it will depend on the extent to which they’re allowed to deliver hikes” and when yields better reflect levels of inflation risk, he said.
