The economists, market analysts, reports, technical analysis, charts… We have everything necessary to understand the market as economy and finance commentators. The most valuable guides in asking the right questions are our audience. This week everyone is more interested in exchange rates. Because the Dollar is on the rise and the Turkish Lira is rapidly losing value.
Since the beginning of the week, all the currencies of developing countries have been losing value to the Dollar. Turkish Lira has the biggest loss with a 1.25% drop in the last week. The Hungarian Forint and Russian Ruble are second and third, following the Turkish Lira.
What is getting more expensive?
Turkish people are going to vote on Sunday in order to elect the president. My guest in Piyasa Hattı, the Head of Işık FX Forex Department Uran Işık states that the tension that we went through during the local elections is not there before the presidential elections. The markets are not so concerned about these elections. The expectation is that the elections will be finalised in the 1st round and Recep Tayyip Erdoğan will be elected as the President of the Turkish Republic.
Uran Işık states the following: “We may see an extraordinary pricing in exchange rates after the elections on Monday, however if the outcome is as expected the markets will forget about the elections from Tuesday onwards”.
That is to say, the elections do not have that much of an effect on the rise of the Dollar.
The source of improvement we have been witnessing in Turkish Lira assets since March was based on the developments in global markets. The experts state that the current situation is also mainly based on global developments. Uran Işık notes that there is a turnover in foreigners and points out that the positions are closing out. He summarises the dynamics of pricing as follows: “This chart is solely related to global risk appetite. We invest to the product we trust. We invest to the product assuming that its price is going to go up.
We should consider developed or developing markets as products. If we have a concern or a hesitation about the developing markets and if we think that we will not be able to get the capital we have invested back with a profit, we would not invest. We are constantly facing a new agenda from yesterday to today and from today to tomorrow. Why would we invest in Ukrainian stock market that is still developing or Portugal where one of the largest banks has lapsed into default in such an environment? The investors are not willing to invest in emerging markets when the geopolitical risks have increased immensely. Instead they tend to invest to developed economies such as the United States, Germany and Japan. The investments are made in dollars. Therefore, the movement in Turkish Lira is predominantly based on “carry trade” positions being abandoned.”
What should the investors do?
When the dollar was in a range of USD/TL 2.08-2.09, everybody agreed that the Turkish Lira was very valuable. Even today, at a rate of 2.16, there are still individuals who think that Turkish Lira is valuable. Uran Işık is one of them. However, he notes that the investors have to be careful when converting these rates into investments. Işık states the following: “I don’t think that the range of USD/TL would test at 2.40-2.50. The investor should buy Dollars if assumed that the Dollar is going to gain value and move towards 2.35 from 2.15, an increase of 10% within the coming 3 months. I am not expecting this. My expectation is that the Dollar is going to be between 2.15-2.20 after the elections, which is similar to recent numbers.”
International investment company Morgan Stanley stated that 2.15 can be considered as an opportunity to buy in their last report. Garanti Investment’s Technical Analyst Altan Aydin states the following: “The exchange rate has broken a serious resistance such as 2.1550. This was the first target. Now it could lead towards 2.1921”.
Aydın, stating that he is not expecting a positive mood after the elections, notes that the uncertainty may continue 1 to 1.5 months. He says “If the USD/TL rate remains more than 2.1550, the direction of the Dollar would go up.”
Would Moody’s change the schedule?
Global credit rating company Moody’s is going to publish its report about Turkey tomorrow. Even though the negative statements of the Minister of Economy Nihat Zeybekçi regarding Moody’s ratings has caused a little concern during the week, the markets do not expect a rating downgrade of Turkey. Uran Işık states the following: “If Moody’s makes a decision as such, they will need to explain the reasons and justify this decision in detail. The markets will not be satisfied with vague statements such as vulnerability against asymetrical risks. On the other hand, I think that such a decision would create a negative impact on the rest of the developing markets. Turkey is one of the few countries that could create a domino effect among the developing markets, just like Portugal. Moody’s would not want to take that risk.”
The pressure on Turkish Lira will continue as the geopolitical risks remain and positive economic data is released in the United States.