Lira drawing investors

LONDON – Turkish domestic debt has become a more attractive bet for foreign investors as inflation declines and the lira gains strength. However, inflows of money remain limited, as many investors are waiting for a longer track record of improved data. «We entered the local market a month ago and we are quite positive after the macroeconomics reforms and good inflation numbers,» said Marechal Raphael at the Paris-based Fortis Investment Management France, which has 450 million euros ($401.1 million) under management in emerging markets. Confidence in Turkish lira debt plunged after a crisis ripped through financial markets in February last year, slicing more than 50 percent off the local currency’s value. But the lira has recovered some losses and it hit a four-month high against the dollar on Tuesday, trading at 1,392,000 to the dollar on the interbank market. Turkey’s recent debt auctions have gone well, with yields in an auction on Tuesday at 71 percent for 140-day bills and 71.3 percent for 238-day bills. The inflation figures showed month-on-month consumer prices rising 3.2 percent, well below market expectations. Turkey still has to gain the full confidence of investors who are cautiously eying a domestic debt load which stood at 117,245 trillion lira (around $79 billion) at end-November. Damien Buchet at the Paris-based Barep Asset Management, which manages about 200 million euros in emerging market money, said his fund was hesitant to invest in longer term maturities. «I understand there must have been few hedge funds taking positions there and a number of people are pushing for that. But for me, it is not a very interesting risk-reward yet,» Buchet said, adding that money was mainly going into short-term overnight markets. Turkey and the IMF are close to sealing an expanded lending deal that will probably see the fund adding some $10 billion to Turkey’s current $19-billion borrowing program. Most of the money – expected to be formalized later this month – is earmarked to reduce Turkey’s domestic debt load. Adam Slater, an emerging market strategist at Credit Agricole Indosuez said investors would be reluctant to invest big amounts in Turkey because of its non-liquid nature. «I think this is the moment when we start looking at the domestic market. If we see a sustained improvement of the inflation numbers then it looks more attractive,» Slater said. A study by J.P. Morgan showed that although allocations to Turkish Eurobonds had increased, investors were still underweight. «They were very underweight till the end of September, but have since increased their positions and are moving closer to neutral,» Jonathan Bayliss, an analyst at J.P. Morgan said.

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