“Inflation-proofed” TRY boosts Turkey’s position as a go-to for carry traders

The Turkish central bank’s “real appreciation” policy for the TRY is propping up the currency and making it an even more attractive carry trade darling, Bloomberg reports. The strategy sees the central bank ensuring the currency’s depreciation is at a lower rate than inflation to maintain purchasing power. Despite the TRY shedding 16% compared to the USD in nominal terms in 2024, it posted its largest gains since 2007 in terms of the real appreciation measure.

That’s great news for carry traders, who stand to gain from an appreciating TRY while raking in massive gains from TRY-denominated bonds that carry 50% yields or higher, the business information service explained. Turkish monetary authorities indicate in a 2025 policy report (pdf) that the inflation-proofing practice is set to continue, meaning that TRY-denominated securities will continue to reel in investors with promises of high returns.

Turkey was the world's best-paying carry trade destination for much of last year. Investors engaging in the USD-TRY carry trade earned 15% returns over the past six months, or “nearly double” gains associated with Argentina’s ARS, the second-best alternative to the TRY, according to Bloomberg data. The currency-stabilizing policies have made the country’s carry trade more appealing by cutting risks associated with shock devaluations, Bloomberg says.

The downside risk: Higher demand for imports could come about as an unintended result of Turkey’s real appreciation policy for the TRY, weakening the country’s trade position, Bloomberg’s Turkey economist Selva Bahar Baziki said, adding that the dynamic could put pressure on policymakers. Despite there not being any indication that the scenario is playing out, investors nonetheless need to be wary that the TRY-denominated carry trade is “already quite over-crowded,” portfolio manager at William Blair Investment Management in London Daniel Wood cautioned.

ALSO FROM PLANET FINANCE-

Our friends at EFG Hermes kicked off the new year advising beauty retailer Nice One on their IPO, which saw the company make its debut on Tadawul’s main market yesterday, according to a statement (pdf). The offering marks not just a new unicorn on the Tadawul, but the first e-commerce platform to be listed.

Remember: The beauty retailer is selling a 31.5% stake in a SAR 908 mn IPO that will be Saudi’s second major IPO in 2025, following Almoosa Health ’s debut Tuesday. Institutional offerings were 139.4x times oversubscribed. The final pricing of SAR 35 per share will give the company a market cap of over SAR 4 bn at listing, and SAR 1.2 bn in proceeds.

MARKETS THIS MORNING-

Asian markets are once again in the red in early morning trading, weighed down by US Federal Reserve minutes that indicate officials are concerned about an incoming jump in inflation on the back of president-elect Donald Trump’s planned trade policies. Japan’s Nikkei and the Shanghai Index are down, while South Korea’s Kospi is just a hair in the green so far.

Over on Wall Street, futures suggest that all three major indexes will be under selling pressure once trading begins this morning, despite the S&P 500 and Dow Jones closing up yesterday.

THE CLOSING BELL-

The EGX30 fell 0.5% at yesterday’s close on turnover of EGP 2.9 bn (26.2% below the 90-day average). Local investors were the sole net buyers. The index is up 0.2% YTD.

In the green: Ezz Steel (+1.7 %), B Investments (+1.3%), and EFG Holding (+0.8%).

In the red: Elsewedy Electric (-2.1%), Beltone Holding (-2.0%), and Oriental Weaver (-1.9%).