How to Use Currencies to Trade Turkey's Election
Turkey's economy has been on a tear, but this election may mark a turning point for the lira. Here's how to trade it.
You may not have noticed, but the Turkish economy has been growing 6% annually since 2002. Now an election is coming up, and the ruling AKP party is widely expected to win.
So will the good times keep rolling? Andrew Busch, global currency and public policy strategist for BMO Capital, isn't so sure.
"The problem with this thing is they've got a massive current account problem," Busch told CNBC's Melissa Lee. "Since 2010, their current account has basically cratered," only partly because of oil.
"They're going to have to go through and deal with this soon. We've got rate hikes down the road, we've got slowing growth." There may be serious constitutional issues to deal with as well, Busch says.
That's why Busch is recommending selling the lira against the dollar. "The market's priced in a happy scenario," he says. "I don't necessarily think it's going to happen." He would buy dollars and sell the lira at current levels, around 1.5775, with a stop at 1.5675 and a target of 1.6075.
Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, points out that Turkey's demographics heavily favor continued growth. With about 40% of the population under age 24, huge numbers of Turks have yet to get their first jobs, buy their first cars, and so on. Still, Turkey's very high short-term interest rates make the lira vulnerable: "Risk appetite swings it around," she says.
You can watch the whole discussion right here.
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