Foreign investors are increasingly pouring funds into lira-denominated Turkish government bonds, marking the largest monthly inflow into Turkey’s domestic debt market on record.
In the week ending May 17, overseas investors purchased a net $1.3 billion in Turkish government bonds, extending the four-week inflow total to $5.5 billion, according to the latest central bank data. This represents the largest four-week inflow on a rolling basis ever recorded, bringing non-residents’ holdings of Turkish domestic debt to the highest level since February 2021.
Factors Driving Investment
The surge in foreign investments has been driven by pledges of monetary orthodoxy and declining inflation. After the central bank’s larger-than-expected interest rate hike in March, investor confidence has grown. Additionally, a significant policy shift following last year’s elections saw President Recep Tayyip Erdogan appoint a more market-friendly economic team led by former Wall Street banker Mehmet Simsek, which has notably improved foreign investor sentiment.
Bank of America strategists recently identified the Turkish lira as the best investment among currencies in Eastern Europe, the Middle East, and Africa. They recommended purchasing lira forwards, citing expected higher summer tourism revenues that could bolster Turkey’s finances. Similarly, Citigroup Inc. suggested that Turkish markets are on the brink of a “Renaissance moment,” following years of minimal foreign participation.
Impact on Market and Investment Opportunities
The amount of Turkish government debt in liras held by non-residents has more than tripled this year, reaching $8.2 billion according to the latest data. This influx of foreign capital into Turkish bonds suggests growing confidence in the country’s economic policies and prospects.
For investors, this trend represents a significant opportunity. The commitment to monetary orthodoxy and market-friendly policies indicates a more stable and predictable investment environment. As foreign holdings of Turkish lira bonds increase, so does the potential for higher returns, especially if the economic reforms continue to strengthen Turkey’s financial position.
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