Deutsche Bank bets on Turkish lira: Long positions held despite looming risks

In a recent note, Deutsche Bank, a German multinational investment bank headquartered in Frankfurt, has reiterated its recommendation to maintain long positions on the Turkish lira, despite expectations of continued, albeit reduced, nominal depreciation in the coming months.

Why it matters: Deutsche Bank’s ongoing confidence in the Turkish lira underscores its strategic assessment that the currency will experience less devaluation in the coming months compared to August.

Why is Deutsche Bank maintaining strong commitment to TL?

• Long position: The bank’s strategists, including Oliver Harvey, suggested that while the currency might still face some nominal depreciation, the rate of decline would not be as severe as in August.
• Exchange rate: They predict that the dollar-to-lira exchange rate will likely remain 1%-2% below its forward levels, which supports their recommendation to maintain long positions on the TL.
• Top investment destination: Deutsche Bank had previously highlighted the attractiveness of TL-denominated bonds as a compelling entry point for investors and named Türkiye as the best investment destination for 2024.

What are major economic challenges facing Türkiye today?”

• Risk factors: The primary risks identified include potential sharp carry inflows or a surge in domestic foreign currency accumulation driven by high inflation pressures. Additionally, unexpected changes in policy could also impact the bank’s position.

• The big picture: Despite the challenges, Deutsche Bank’s strategy indicates a level of confidence in Türkiye’s economic landscape. However, the bank remains vigilant of the factors that could destabilize this position, emphasizing the importance of monitoring inflation and policy developments closely.
• Zoom in: Previously, Deutsche Bank’s head of research for the Middle East and Eastern Europe, Hans-Christian Wietoska, emphasized the importance of maintaining a tight monetary policy in Türkiye.