The Lira was the 2nd worst performing emerging
market currency in 2016. Not surprising when you consider the perfect storm of
the matters referred to in the introduction to our Turkey forecast. But of
course what we really want to know is, will the depreciation continue or will
there be a turnaround?
January 2017 has many of the same indicators that
characterised last 2016, so we can’t expect a good outcome.
However there are also some factors which balance each other
out, so perhaps the trend will not continue, and there may be some sudden
reversals.
March to May, while not wholly positive, and whilst still
having some sharp movements caused by new events, is less difficult that the
last 4 or 5 months. I expect that the trend will settle down now except for
some odd volatile days.
June to August, however, sees a return to some of the more
difficult conditions from January. Nevertheless there are also some surprises
for investors on the upside.
Although a mixed period, there are some signs that things
could be positive especially in July.
September and October, are very difficult though. Many of
the trickier conditions return but now the potentially more positive aspects
are likely only to accentuate the downside, rather than create a positive trend
on their own.
November and December are more moderate and in November in
particular there may be a recovery of sorts in value. But it won’t be big as
there is still too much restraint that will keep the positive within bounds.
January and February, however, are some of the best months the currency has
seen in a while. Investor sentiment is good and buying indiscriminate. There
are some obstacles but I’d expect at least some increase in value now.
March to May is a period of transition and is accompanied by
some very negative sentiment.
Investors are genuinely concerned now about which direction
to take and that fear is likely to encourage them to sell the currency.
The latter part of the period is particularly tricky
throwing up some of the issues that were in place in late 2017
June to August is definitely quieter. Not a great time,
there are a lot of negative factors at play, but there is nothing as intense as
earlier in the year. Though I don’t expect an increase in value now, I don’t
see big falls either; there is just isn’t the momentum for it.
Similarly in September and October. There seems to be almost
a reprieve and investors may well be encouraged to buy the currency now.
However once again we are not looking at big movements.
November and December see both surprises on the upside and a
sense of caution that stops big movements. Although I expect the trend to be
positive now, I still don’t expect major shifts in values.
While early 2019 carries some of the mood of 2018 over, it
begins to become more intense quite quickly.
January and February are very challenging. Not only is there
a general climate of fear, and a sense of significant uncertainty as well as
more caution and concern with small details amongst investors, there is also a
reduction in trading and apatite for risk. There are some brief periods of
optimism but the balance is surely negative.
March to June is not much better as the sense of fear
increases. However there are some positive surprises now and this may make for
some up days particularly at the end of the period when investors may overreact to some positive
surprise.
July to September is mostly a continuation of the themes of
the first half of the year. Continued fear undermines the currency and
continued uncertainty from investors makes it difficult to commit to major investment.
The shocks now are negative financial ones, rather than the positive ones of
May June and these together with the restrictive environment makes for a fall
in the currency. Once more there is some expansive sentiment but this might
again only serve to magnify the positive rather than alter the trend.
October and November are really no better, Indeed there is
very little than is new. The only thing that is likely is that the amount of
trade increases as investors are highly motivated to change their positions
now, enough to overcome their sense of inertia that kept them from big bouts of
selling before. It is probably a particularly bad time for the currency.
December also sees a continuation of the main themes of the
year. There is increased fear but now there is less activity- almost as if
investors are paralysed by the fear rather than motivated by it.
January and February start with very difficult conditions
indeed. Pressures from the outside world may cause major falls in the currency
now. There is certainly a lot of fear ( even greater than in 2019) and a drive
to trade- the combination is not good at all.
March to July is somewhat different. The seems to be a vast
amount of funds moving now. Enough to undermine whole markets and economies.
There are more economic shocks although not all of these are negative for this
currency. It is possible that the January and February trend will continue now,
but it is also possible that there will be a big turning point in these 4
months.
August and September are more like January and February,
however, with big shifts in the amount of trade and the extent of investment/funds
flow. The momentum starts to consolidate by the end of the period.
That means that October and November are the months of one
last major push. Although the huge negative conditions still exist, this is
also a period of some noticeable positive surprises . It is conceivable that
rather than further falls the currency stages a come back. However we need to
be closer to 2020 to fully understand what is happening globally at this time
and to understand how this plays out at the local currency level.
What is clear is that much of the intensity, if not the
sense of fear, reduces significantly by the end of the year.
A sense of a new environment being created
occurs and this tends to make investors more comfortable. I don’t expect any
major increases now but I do expect some sense of relief that the worst may be
over.
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