Turkey’s Turkish Investment Fund (TKF) closed-end fund (CEF) has been on a roll since August, but it might hit a wall unless it clearly defines its economic goals, as the economy shows signs of slowing.
Five years of strong economic growth averaging 7.4% per year was the primary reason the pro-business government of Recep Tayyip Erdogan received an overwhelming mandate for re-election. However, it’s been more than two months since then and Erdogan has yet to reveal an economic agenda for the second term, reports Vincent Boland for the Financial Times. Expectations about Erdogan’s agenda are high because of the success of the past five years. Exports are booming, and foreign direct investment has flooded in – it could reach $25 billion this year. The increase in foreign investment could be one factor in TKF’s upswing.
Highlighting the need for an economic agenda, the International Monetary Fund (IMF) has started talks with the Turkish government because of the country’s large, current account deficit equal to roughly 8% of its gross domestic product (GDP). In addition, Turkish companies have huge foreign currency borrowings, which concerns the IMF.
Also putting the economy at risk is the strong lira that has risen sharply because of high Turkish interest rates and because it’s significantly exposed to the carry trade, says Carl Delfeld for ETF XRAY. The carry trade refers to an investment strategy where investors borrow money in low interest rate currencies, such as the yen, and invest it in high-yielding currencies such as the lira, which offers real returns of about 10%.
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