Pinebridge, T. Rowe Flag Turkish Lira as a Top EM Currency Bet

In the ever-evolving landscape of emerging markets (EM), currency bets can be a high-stakes game. However, two prominent investment firms, Pinebridge and T. Rowe Price, have recently flagged the Turkish Lira as a top EM currency bet, signaling a potential turnaround for the embattled currency. This article explores the reasons behind their optimism and the economic indicators that could shape the Lira's future.



The recent stabilization of the Turkish economy and inflation rates has contributed to the attractiveness of the Turkish Lira. Since the end of the Turkish economic crisis in 2001, the country has enjoyed a long booming period, with economic growth, political stability, and reduced investment risks (Source 4). The stabilization of inflation and interest rates has facilitated investment and trading, leading investors to feel sufficiently protected regarding the discounted rates of their future cash flows and potential returns.

Political stability and reforms play a significant role in enhancing the Turkish Lira's appeal as an EM currency bet. Post the 2001 economic crisis, Turkey's political stability and economic reforms, such as stock market liberalization and inflation stabilization, facilitated investment and trading (Jayasuriya, 2005; DiSario et al., 2008). This stability reduced investors' risks, making the Lira an attractive EM currency bet. However, recent political turmoil and economic challenges have eroded the Lira's appeal. Pinebridge and T. Rowe Price flag the Lira as a top EM currency bet, indicating their confidence in Turkey's potential to regain political stability and implement reforms, thereby enhancing the Lira's appeal.



Pinebridge and T. Rowe Price consider several economic indicators crucial for the Turkish Lira's performance. These include the country's economic growth, political stability, inflation and interest rates, and the reaction of financial markets to these factors. Specifically, they look at the relationship between the stock and forex markets, with momentum investing and uncovered equity parity theories playing a significant role. Additionally, they consider the impact of order flows in the foreign exchange, bond, and stock markets on exchange rates, as well as the effect of the uncovered equity parity on macroeconomic parameters and the real economy.

Both firms expect the Turkish government's policies to influence the Lira's value positively in the near future. Pinebridge's Hani Redha, CAIA, Portfolio Manager, Global Multi-Asset, believes that the government's pro-business agenda and supply-side policies will stimulate economic growth, offsetting inflationary pressures. T. Rowe Price, in their Global Market Outlook, also highlights the potential for the Lira to appreciate, given the government's efforts to reduce the current account deficit and stabilize inflation. These policies, coupled with improved investor sentiment, are expected to strengthen the Lira, making it an attractive EM currency bet.

In conclusion, Pinebridge and T. Rowe Price's optimism about the Turkish Lira reflects the potential for the currency to rebound, driven by the government's commitment to fiscal discipline and structural reforms. As investors seek opportunities in EM currencies, the Lira's recent stabilization and the firms' confidence in Turkey's potential make it an attractive bet. However, investors should remain vigilant to the political and economic challenges that could impact the Lira's performance in the near future.