Like lemmings into the sea, Turkey peaked last Thursday as two major Turkey conferences — one in London and one in New York, brought more global accounts to focus on the country, thus leading fresh lambs to slaughter.
If you have traded Turkey over the years, this was the classic moment to fade strength if you’re a market timer, and if you’re a technical trader, this was your medium-term top on fund flows.
Both said to sell (yes, market timing and technical analysis are two different things), as this trade has gotten very crowded despite not being fundamentally flawed.
From a top-down perspective, Turkey has expected GDP growth of 4-4.5%, is beginning to show an inflation outlook, and only moderate current account deficit risk. However, the market move was so fast that equities did most of their full year upside work in the first three weeks of this year.
Today’s catalyst however, was a conference call given by Moody’s, which was reportedly ready to issue Turkey an investment grade rating. This would be the real validation of the upgrade call Fitch made in the fall. Here are the headlines:
MOODY’S SAYS ITS TURKEY FORECASTS MORE PESSIMISTIC THAN GOVT’S
TURKEY CUTTING PRIVATE EXTERNAL DEBT IMPOSSIBLE CONDITION: BGC
TURKEY C/A GAP ‘STRUCTURALLY INFLATED’ BY ENERGY: MOODY’S
MOODY’S UPGRADE CONDITIONS NOT EASILY MET SHORT-TERM: BGC
MOODYS INSISTENCE ON TURKEY STRUCTURAL ISSUES DISCOURAGING: BGC
MOODY’S MAY CUT TURKEY IF SUDDEN, SUSTAINED STOP IN INFLOWS
LIRA WEAKENS AFTER MOODY’S LEAVES TURKEY RATING UNCHANGED
Today’s volume move was solid, more than $2.5 billion USD. Expect a test of the 50-day moving average and at least one more probe to that. Then there will be people looking to add. EVERYONE has been saying they want to buy the dip. Many people missed this trade. Some of this move is also about rotating out of Turkish banks and into Russia and Sberbank (PINK:SBRCY).
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.