Should I buy Turkish lira now?
Why I am buying Turkish Lira now
At its peak, the Turkish lira is losing 20% in value against the dollar. You rarely see something like this, especially with a freely convertible currency. If a currency is pegged to the dollar and this peg is suddenly ended, major adjustments can occur. You don't even have to wander far away. Just remember the abolition of the minimum euro / franc exchange rate. Like a junk currency, the euro lost 30% of its value against the Swiss franc.
The minus was significantly smaller at the end of the panic. It could be similar with the lira.
The lira will not appreciate in the long term. You shouldn't have any illusions about that. Turkey has a deep red trade and current account. That puts constant pressure on the course.
Depending on the level of interest rates, inflation and trade balance, you can expect a depreciation of 10% per year. This year it was 45%. That seems to me in spite of the truly not rosy situation exaggerated. Trump has announced that tariffs on steel and aluminum will be doubled for Turkey.
The USA is a large buyer of steel from Turkey. The USA imported almost 2 million tons last year. That sounds like a lot and is important for the steel industry, but hardly worth mentioning for Turkey. The equivalent is about $ 1.2 billion.
Turkey exports a total of approximately $ 80 billion worth of goods. 1 billion more or less does not upset trade. The fundamental effect of tariffs is overestimated. In my personal opinion, we are just seeing a panic reaction here.
The next few days will tell whether things get worse. An independent central bank would now raise rates sharply. The interest rate is currently just under 18%. An increase to 25% or 30% would calm things down quickly.
The lira is currently being sold short on a massive scale. But that's not free. It costs interest or, more precisely, the interest rate difference between the currencies. Investors have to pay more than 15% per year for their shorts. If this amount doubles because the central bank raises interest rates, the shorts will simply become too expensive at some point. In order for the effort to be worthwhile, the currency must then surrender at least 30% in one year. At least in the medium term, such a rate of devaluation is not justified.
We'll know more on Monday or Tuesday. Personally, I could imagine that this is where the panic is at its height. I am therefore buying lira at the rate (to the dollar) of 6.48. 15-20% returns are possible. However, if the course does not turn quickly, a sale is made. It's a trade. If it does not open (we will probably know at the beginning of next week), it will be closed. If the central bank intervenes, profits can be realized within a few weeks.
The whole thing is high risk. The position must be correspondingly small. In case of doubt, it is better to keep your hands off it if you are not comfortable with the overall topic.
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