Amundi Reengages with Turkish Lira Amidst Economic Turnaround Efforts

Amundi, recognized as Europe's largest asset manager and a leading entity globally, has cautiously reentered Turkish lira investments, influenced by Turkey's economic reforms post-mid-year elections. While the firm, boasting $2 trillion in assets under management, is not fully committed due to the persistent depreciation of the lira, it has begun altering its previously bearish stance on the currency.

First Steps Toward Reinvestment

Amundi's co-Head of Emerging Markets Fixed Income, Sergei Strigo, acknowledged the 500 basis-point interest rate increase to 40% by Turkey as a bold and constructive move in combating inflation. Strigo conveyed that Amundi has started adjusting its previously underweight position in Turkish lira a few weeks earlier, hinting at a nascent, more favorable view on the currency.

International Investor Sentiment on the Rise

The investment world has tracked the lira’s near 85% drop over five years with concern. However, Amundi's shift might signal the beginning of restored confidence in Turkish investments. Following President Tayyip Erdogan's re-election, his administration has replaced old policies with decisive rate hikes and less regulatory interference, aimed at attracting investments and replenishing Turkey’s foreign reserves.

Other financial institutions, including JPMorgan and Goldman Sachs, are also showing interest in Turkish financial instruments, albeit remaining cautious. Despite the potential for Turkey’s story to become highly compelling in 2024, as per Strigo, the international fund presence remains below 1% in lira-denominated government bonds, largely due to Erdogan's inconsistent economic decisions in the past.

Balance and Caution Ahead of Elections

Amundi is using FX forwards, which currently suggest another 40% devaluation in the lira. Strigo, however, finds this projection overly pessimistic. Amundi's tentative approach will be tested by Turkey's upcoming local elections, which could lead to fiscal incentives that deviate from the current economic direction.

The Central Bank of Turkey, under the leadership of Governor Hafize Gaye Erkan, aims to solidify investor confidence with its first investor day in New York on January 11, ahead of another potential rate hike in the coming month.

Amundi, Turkey, Lira