Carry trade inflow to Turkey reaches $30 billion

Foreigners continued to see large inflows in their swap positions during the week of September 27. In the period of March 29-September 27, cumulative inflows on the carry trade side reached $29.7 billion. Citibank, which analyzed carry trade transactions in comparison with Egypt, also stated that the strong TL puts inflows into Turkey at risk.

Source: Banka Dünyası

Foreigners' carry trade interest in Turkey continues with large inflows.

Foreign investors continued to enter swap positions in the week of September 27. According to calculations by economist Haluk Bürümcekçi, banks' off-balance sheet foreign exchange positions increased by 1.1 billion dollars in the week of September 27.

During the same period, the weekly and long-term reverse swap positions of the Central Bank of the Republic of Turkey (CBRT) increased by $595 million. Inflows in the relevant week amounted to $1.7 billion.

When we look at the period after the elections, we see that carry inflows were 27.1 billion dollars.

Citibank's comparative analysis of Türkiye and Egypt

While the entry continues on the carry trade side, comments regarding the carry trade came from Citibank.

Although Turkey’s move to orthodox monetary policies has been welcomed by investors, the relative strength of the Turkish lira may be deterring large portfolio inflows into the country, according to Omar Hafeez, the bank’s head of North Africa, the Levant and Central Asia.

Hafeez said fixed-income investors were positive about Turkey, but inflows had not reached the levels the bank had expected. One reason could be that “the Turkish lira has not moved as much as it should, unlike what happened in Egypt,” Hafeez told Bloomberg in an interview in Dubai.

The Egyptian pound lost almost 40 percent of its value against the dollar in March after authorities implemented a long-awaited devaluation and secured an expanded International Monetary Fund (IMF) program. In Turkey, the Turkish lira has fallen 13.6 percent since the beginning of the year.

Turkey and Egypt have been among the top carry trades for investors in the EMEA region this year. A Turkish bond indexed to the CBRT’s policy rate offers one of the highest yields in the world at 50%, while Egyptian Treasury bonds yield more than 20%.

Hafeez said that the local elections in March were seen as a “good test for the new orthodox policy” and that the fact that Turkey had not changed course ahead of these elections “has raised the confidence level” of investors.

In Egypt, investors have poured billions of dollars into the local bond market following the devaluation in March, but mostly in short-term bonds, while equity investors remain cautious.

Source: Bloomberg HT