SocGen’s Anne Says Turkish Lira Cheapest in Emerging Markets

Turkey’s lira is the most undervalued currency in emerging markets and will strengthen after the “temporary shock” of U.S. stimulus tapering is over, according to Societe Generale SA.

“The shock emerging markets are going to see next year is only temporary,” Benoit Anne, the head of emerging-markets strategy at SocGen, said in an interview in Istanbul today. “Turkey was excessively penalized by the markets and the Turkish lira, tactically, I’d buy it.”

Anne’s view contrasts with that of other global banks including Goldman Sachs Group Inc., which is predicting that the lira will bear the brunt of a forced rebalancing in the Turkish economy. Goldman says the currency will probably fall to 2.4 per dollar within 12 months and to 2.5 in 2015. The currency traded at 2.0536 against the greenback at 1 p.m. in Istanbul, down 13 percent this year.

The lira and Turkish bonds plunged after Federal Reserve Chairman Ben S. Bernanke said May 22 he could begin reducing his monthly bond-buying program. Turkey’s economy will probably require foreign inflows equal to about 7 percent of gross domestic product next year to cover its current-account deficit, which at $3.28 billion in September was bigger-than-expected, according to central bank data published today.

Buy Lira

Investors should buy the lira against the euro as Turkey offers some of the best growth prospects in emerging markets, Anne said, targeting a value of 2.55 per euro from the current level of 2.7573.

“If you’re talking about growth reviving next year in emerging markets, which it seems to be doing, you cannot afford to miss out on Turkey,” he said. “Turkey is the best in the region in terms of growth performance.”

The government will “comfortably” meet its 3.6 percent target for gross domestic product this year, Industry Minister Nihat Ergun told parliament in Ankara today. The GDP will probably accelerate to 4 percent in 2014, according to the average of 33 economist estimates on Bloomberg. That compares with a 3 percent forecast on average for emerging Europe, the Mideast and Africa, according to Bloomberg surveys.

Societe Generale predicts the Fed will begin tapering its $85 billion in monthly asset purchases in March, a view also held by a majority of economists in a Bloomberg survey last week. Once tapering begins, the bond purchases will be reduced to zero within five to six months, Anne said.

“Once this is completed, there will be a window of opportunity for emerging markets” because market prices have adjusted to the prospect of reduced stimulus, he said. “Emerging markets are better prepared, valuations are better.”

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