In an interview with Bloomberg, Sergei Strigo, emerging market bond manager at $2 trillion fund Amundi, emphasized that the downward trend in inflation must continue in order to invest in Turkish bonds.
Europe’s biggest asset manager thinks foreign investors will stay away from Turkish lira-denominated bonds until inflation reverses course and slows, meaning capital inflows won’t materialize before mid-year.
Sergey Strigo, co-head of emerging markets bonds at Amundi SA, said in an interview with Bloomberg: “In my opinion, for international investors to enter the local bond market, ideally you need to see inflation actually coming down. And we haven’t seen that yet. For me, that would be the main trigger point.”
Strigo is more optimistic about the future of the Turkish lira than the market is pricing in, noting that Amundi has already invested some of the $2 trillion under management in eurobonds issued by Turkish companies and the state.
“Although the currency will continue to weaken gradually in nominal terms, one-year forward contracts imply ‘extreme depreciation’,” Strigo said, adding that Amundi has a “neutral position” in the lira. One-year USD/TL forwards point to a level of around 43, while spot trades are around 30.
“In absolute terms, the Turkish lira has the potential to deliver positive returns for 2024 at current levels,” Strigo said, adding that a significant part of the currency’s appeal comes from the “carry side”.
According to Amundi, the risks to the investment scenario in Turkey will become clearer after the municipal elections in March.
Pointing to the expectations that the Central Bank will raise the interest rate from 42.5 percent to 45 percent this week and the possibility of more than that, Strigo said, “This may increase interest in lira-denominated bonds, especially if policy continuity is ensured.”
“There is definitely a potential for portfolio inflows once we start to see inflation numbers improve a little bit from where they are today,” Strigo said.