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Feb 11 2019

Turkish lira may benefit from emerging-market rally – strategist

Turkey’s lira, which suffered a currency crisis last year, may benefit from a possible rally in emerging markets, which are now “really cheap”, said Mary Nicola, a foreign exchange and fixed income strategist at Eastspring Investments.

"Now that the Fed hikes are off the table for a little bit, and the Fed can afford to be patient, EM funding conditions won't be as tight as before," Nicola told CNBC in a televised interview.

The lira, along with the Indonesian rupiah and Russian ruble, is among the cheapest of emerging-market currencies. Eastspring recommends buying all three on strong fundamentals, she said.

While the lira may appreciate, the government needs to undertake more reforms, Nicola said. Meanwhile, the Russian economy is doing pretty well despite geopolitical tensions, she said.

Turkey’s lira has rallied from an all-time low of 7.22 per dollar in August to trade at around 5.27, but the currency is still almost a third weaker than at the start of last year. Analysts are calling on the government to take measures including dealing with the foreign currency debt of embattled corporations and increasing the capital of banks, if required, once a stress test is complete. Democratic reforms should also be on the agenda, many say.