Turkey ETF Bounces After Steep Selling

A Turkey country-specific exchange traded fund climbed Wednesday as value traders tried to catch a falling knife in response to the recent selling pressure.

The iShares MSCI Turkey ETF (NASDAQ: TUR) gained 2.8% Wednesday after plummeting 27.2% over the past three months.

Dragging on the Turkey market outlook, the lira currency has tumbled to record lows in recent weeks and weakened by more than 20% against the USD so far this year and depreciated 70% over the past five years. The lira fell more than 5% Wednesday against the U.S. dollar to hit a new record level of 4.9290, pushing toward the psychological level of 5 to the dollar, Reuters reports. The lira currency is on track for its worst weekly and monthly performance in a decade.

The Turkish economy has suffered from a widening current account deficit, double-digit inflation and recent comments from President Tayyip Erdogan whom called himself the “enemy of interest rates”.

Sights Set on Lower Interest Rates

“Erdogan is saying he wants to take more control of monetary policy, which basically means he wants to see lower interest rates,” Peter Kinsella, FX and rates strategist at Commonwealth Bank of Australia, told Reuters. “The results of this is that markets are saying this place is turning into a bit of a basket case (and) we want to get out.”

The lira’s long period of decline has been attributed to the Turkish central bank’s refusal or inability to hike interest rates as much as economists believe is necessary to strengthen the currency, the Wall Street Journal reports. Turkish President Recep Tayyip Erdogan has referred to high interest rates as “the mother and father of all evils” and is campaigning for re-election on a platform that promises the central bank will provide cheap lending.

While Turkish markets were closed at last check Wednesday, U.S.-listed ETFs like TUR serve as a real-time price discovery vehicle for investors. The Turkey ETF was trading with a volume of 2.5 million shares late Wednesday, compared to its average daily volume of 314,000, according to Morningstar data. Additionally, TUR showed a 3.64% premium to its underlying net asset value, which suggests that U.S. ETF traders were happy to pay up for Turkey exposure as they expect Turkish markets to rise after the recent weakness.

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