European fund Amundi dips toe back into Turkey’s lira

Reuters

Amundi, Europe’s largest asset manager and among the top 10 in the world, has started dipping its toe back into the Turkish lira having been impressed by the country’s turnaround efforts since its mid-year elections.

The Paris-based firm, which has $2 trillion worth of assets under management, is yet to go all in given the lira’s ongoing grind lower but says it has taken its first step towards it by reversing long-held bets against the currency.

Sergei Strigo, Amundi’s co-head of emerging markets fixed income, said last week’s 500 basis-point interest rate hike to 40 percent in Turkey was “all very positive” and a sign of its seriousness in tackling its inflation problem.

“We have started to cover our underweight in Turkish lira a few weeks ago,” Strigo told Reuters, referring to the process of taking a more positive view on the currency.

“We are not yet ready to increase the allocation but it is definitely on our radar screen.”

Having seen international appetite for investing in Turkey shredded by the near 85 percent plunge in the lira’s value over the last five years, more positive moves by heavyweight firms like Amundi will be seen as a signal of hope.

Following his re-election in May, President Tayyip Erdogan brought in a new-look cabinet and central bank that have sought to ditch years of unorthodox policymaking by embracing aggressive interest rate hikes.

They have also begun unwinding the state’s heavy-handed financial market regulations to help entice investment and rebuild depleted reserves wiped out over recent years.

Amundi, while the first major fund to formally declare its shift, is not alone in testing the waters, according to other foreign investors and bankers.

Investment bank JPMorgan has recommended the FX forwards trade in recent weeks and both it and rival Goldman Sachs are aggressively pitching Turkish government bonds with durations of one-10 years, according to some investors.

The scars of Erdogan’s unpredictability however – including firing four central bank chiefs in the last four years – means international funds as a group hold less than one percent of lira-denominated government bonds.

“It could be one of the most interesting stories for 2024,” Strigo said, referring to a potential mass return of investor appetite if the policy shift sticks.