Reducing Turkey exposure

Regis Chatellier, strategist, Societe Generale

Dunya Executive - - REPORT -

We remain market-neutral on sovereign credit and increase duration exposure to neutral from underweight. Turkey’s dollar-denominated bonds are still attractive from the carry perspective, but we see limited potential for spread compression going forward; we reduce our exposure to moderate overweight. The political uncertainties have been lifted, but at the same time, the results of the referendum have highlighted the stiff divisions between AKP supporters and the rest of the population. In our view, the very tense political environment and the increasingly difficult relationship with the European Union will adversely affect the business climate, foreign investments and, eventually, growth performance. Dollar bonds are still attractive from the carry perspective (anchored by a firm willingness to remain current on external liabilities), but we see limited potential for spread compression going forward. We therefore reduce our Turkey overweight exposure and bring it to moderate overweight. We favour the short end and the belly of the dollar curve. (April 19)

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