Seasonal Stuffing for the Turkey Lira as it looks pretty plucked down around 2.5% to the dollar
While browsing the markets over the weekend it came to my attention that the Turkish Lira is looking well-plucked, down around 2.5% against the dollar. The FT correspondent came up with the prevailing reasons, US ‘tapering’ and Turkish politicians getting banged up on corruption charges.
I checked the Euro against the Lira and found that the Lira had fallen 2.13% against the Euro on the week, closing down at 0.3499, a record low. See chart.
Tapering may explain a dollar v Turkish Lira dump but it does not explain a 2.13% fall against the Euro. As for Turkish politicians being corrupt? Really? Goodness, gracious me! Nothing new there then, certainly nothing to knock the market by 2.13%.
Plus de la méme!
Political corruption in Turkey is in itself is old news and not likely to affect the markets unduly. If on the other hand there was an announcement that there would be no further political corruption in Turkey we could expect a serious rally.
The below chart depicts the demise of the Turkish Lira over the last nine years.
My first reaction as a long gamma options market-maker was ‘money for old rope’. The volatility from 2005 has been high, the fluctuations wild (turkey). [“Stop it.” Ed]. This is a long premium player’s dream.
But then it occurred to me that whatever the reason behind last week’s 2.13% fall, it wasn’t political corruption or tapering; there is a long-term decline in the value of the Turkey Lira. On the 2nd March 2006 the Lira was worth 0.6431 Euros, on Friday it was worth just over half of that at 0.3499.
Plump Turkey in Rude Health
If the Turkish economy was a basket case then maybe one might be able to point at that as the reason for the Lira’s decline. In the ‘Business
Reporter’s ‘Invest in Turkey: A vibrant nation where East meets West’ issued 22nd December 2013 it states: “The economy has been growing at over 5 per cent per year since 2002.” while it “has attracted around US$120billion of FDI* over the past decade….” It further states that an OECD study forecasts that “…..Turkey will be the fastest-growing economy among the OECD countries in 2012-17, with an annual average growth rate of 5.1 per cent….”.
Yet possibly the stand-out statistic is that Turkey has a population of 76 million people (which would make it the second largest population in the EU were it a member) of which 50% are under the age of 30!
This currency should be going through the roof………….
Turkey Becomes A PIG
What other effect could be having such a negative impact on the Turkish currency over such a lengthy period of time? I surmise that Turkey’s Lira is being devalued in order to fit in with the global view that a European country with a beach on the Mediterranean Sea is a have-not, a pariah. Turkey is being dragged down to the required photo-fit of a PIG.
This is a ludicrous state of affairs. Have-not currencies should be appreciating as EC membership approaches, not depreciating, to reflect the future prosperity of the country. If ever there was a reason for non-believer members, e.g. the UK, to quit the EC then the current performance of the Turkish Lira provides it.
But with a population comprising predominantly of Moslems we may in the future witness the fastest withdrawal of any member state as their prize economy is deemed a PIG; or else we are likely to see a very smart about-turn in the current free-fall of the Lira as the market reassesses its present valuation of the currency.
*Foreign Direct Investment