I’m looking at the sizeable 12% interest rate differential on the USD/TRY currency pair.
I’m thinking this might be a good time to look to position myself short in the USD/TRY to participate in Turkey’s economic development over the next year or so -
For what it’s worth I’d rather position myself long to participate in the USA’s economic recovery!!!
Let me tell you something for nothing:
‘They’ will never let the USA ‘slide’ for any extended period of time.
I’ll tell you something ELSE for nothing:
Anybody who thinks that the ‘economic power’ is shifting away for the USA obviously has not sat in front of a chart when the NYSE in closed!!! (And I mean ANY chart not just equities)!!!
Hi Danny
I must say that this is the kind of trade that appeals to me,
I am going to do some fundamentals analysis of the Turkish economy. See how it looks for the next year, maybe I can find some decent forecasts etc.
Even if it sits flat after a year it would still be a great interest earner…
cheers
Brendon
I’ve been running calculations on that very thing. For my own sanity I’d have to hedge downside risk with some sort of derivative though, that way you could run high leverage. It all seems to hinge on the premium of the forward/option.
EDIT: I said “seems to hinge”. That’s not really correct. It DOES hinge on the premium you pay. In effect, I’m hoping for a mispriced option by using two different brokers. One for the carry and another for the hedge.
Sort of a stealth arbitrage.
Anyway, if you’re doing your own calculations for effective interest rates remember that the carry may require additional “dry powder” liquidity in case the trade turns against you.
The Kenyan civil war and further interest rates increases from the central bank of Turkey may push the TRY higher.
However, Turkish industry needs to keep export prices low - and for what it’s worth, the leading industrialist family, Sabanci, have suggested that the TRY is currently overvalued.
Well for now it looks like hedging downside price movement with an option isn’t going to work. The premium is just too much and buying deep out of the money defeats the purpose of the hedge. I’ll check on forward contracts and see if those are any better, but it looks as if hedging will eat up roughly 120% of expected profits.:eek:
I apologize for the double post, but does anyone have a good resource for historical exchange rates. Preferably in a spreadsheet format (or a format I can easily manipulate)? I want to dump a few years worth of currency data into SPSS and see what pops out.
It seems that the TRY may be a little overvalued compared to other emergers
This graph also reinforces my opinion that the ZAR is undervalued and may be a better carry trade for the next few months…
South Africa also released a decent 2008 budget which should help to attract some investors back after the all the January bad news scared them away.
cheers
Brendon
