US bank warns of a "trap" in Turkish assets... Could reverse

Bank of New York Mellon has warned that foreign capital inflows into Turkish assets may have become excessive and that investors are likely ignoring traps that could lead to a reversal.

According to a Bloomberg News report, BNY Mellon Markets and Strategy Manager Bob Savage stated that very high borrowing costs and geopolitical tensions pose significant threats to this crowded currency trade.

Savage said, "Turkey is at a crossroads of complexity. You could see the Iran-Israel conflict worsen. You could see the Russia-Ukraine conflict get worse."

'I AM NOT SURE IT CAN SUSTAIN INTEREST RATES'

"I am not sure it can sustain 50% interest rates," Savage said, adding, "People are long on bonds, stocks, and the currency."

Savage stated that a reversal could occur in the fourth quarter or early next year, and that inflows could shift toward "counterweight" economies such as Egypt, Nigeria, and Argentina. "People are happy with the policies and they are on the right track, but I am not sure it deserves all the money. One must acknowledge that there are issues that will cause it to loosen. That is the reality," Savage said.

Bank of America strategists have calculated that Turkish lira forward positions could exceed 20 billion dollars. Deutsche Bank and Pictet Asset Management, which have characterized Turkey as the "trade of 2024," are among those bullish on Turkish assets.