Turkey

Thanks to the tight monetary and fiscal policies so far, inflation and growth are heading lower in Turkey. Buy 2-year local currency bonds, currency unhedged. Also, upgrade Turkey's domestic bonds from neutral to overweight and stocks from underweight to neutral within their respective EM portfolios.

Erdogan's rule continues to decline. Social unrest will persist, governance will erode, and the macro backdrop will deteriorate further. We recommend underweighting Turkish assets. 

Turkey has a path toward sustained disinflation. But that will require tight macro policies for an extended period. The question is, will the authorities tolerate the consequent growth slowdown, even a recession, and surging unemployment, as the necessary cost to break the back of inflation?

We dig into the USD-denominated Emerging Market Sovereign Index to see which credit tiers and countries offer value relative to US Credit.

Turkey’s macro policy stance can hardly be called orthodox. And yet, corporate profit margins will contract meaningfully this year. The lira can also fall massively even if inflation eases from the extremely high levels – just as it did in the 1990s.

While 2024 will see various election risks, global geopolitical uncertainty is driven by the US election and its struggle with Russia, China, and Iran. The stock market can manage local domestic political risk. But it will correct upon a major outbreak of geopolitical uncertainty.