Turkish lira off-limits to investors due to protectionism - strategist

Investors are no longer shorting the Turkish lira because of interference in the market by local authorities, said Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London.

Efforts by Turkey to bolster the currency, most recently during an international backlash to a military incursion into Syria that began last week, also mean that foreigners are shying away from investing in Turkish bonds, Ash said in emailed comments to clients on Thursday.

“TRY/local not really markets anymore – it’s so heavily manipulated now by the Turkish authorities/state-owned banks,” Ash said. “Foreigners have long just been on the sidelines.

“Sure, they are not willing to short the currency, but at the same time they are now very reluctant to participate in government debt auctions given problems hedging.”

The lira fell less than 0.1 percent to 5.89 per dollar at 1:47 p.m. local time in Istanbul.

Turkey has used state-run banks and the swaps market to help steady the lira since a currency crisis last year sent the economy into a painful downturn. The crisis has led to a surge in non-performing loans in the banking industry as companies struggled to repay foreign currency debt.

The lira is almost unchanged against the dollar this week even after President Donald Trump doubled tariffs on Turkish steel and barred senior Turkish ministers involved in decision-making on the Syria operation from entering the United States. Investors fear Washington could impose more heavy penalties should Erdoğan refuse to agree to a ceasefire.

President Recep Tayyip Erdoğan was due to meet U.S. Vice President Mike Pence and Secretary of State Michael Pompeo in Ankara later on Thursday amid efforts by Washington to halt clashes between Turkish forces and Kurdish militants in Syria.

Turkish regulators have also advised local banks not to offer lira liquidity in the offshore swaps market to help prevent short-selling of the currency.