update on TUR US on August 15th: we close our risky long trade at 22 (bought at the open at 19.83 on Friday)
August 10th: My first boss Mr Bouskela used to create “equilibrium of the terror” trades (buying both extremes of a theme, one extremely benbeffiting and the other one extremely hurt) to generate high risk reward trade on a medium term. Here is one:
The TRY continues to weaken, depreciating c50% vs the EUR YTD, worth noting most of the European retailers will have some Turkish sourcing (given it is the biggest proximity sourcing market for apparel). Within the mix, the biggest beneficiaries of the move should be ASC and ITX, and BOSS… The FX move comes at a helpful time providing a tailwind to ITX (better EPS growth grade at 51 from 41 in March). We also buy the etf on Turkish stocks at this level also. this is risky trade for the following reason explained below:
By now, you’ve probably read in the news that the Turkish lira is collapsing. There are a few key reasons why this is happening and one big reason why it’s
important for markets globally.
The first problem – inflation in the economy has exploded and is now just under
16% y/y. That’s more than TRIPLE the central bank target. Yet another problem – Turkey runs a wide current account deficit (at around 6% of GDP). In other words, it borrows/spend s more than it saves and of course, and its spending habits are financed by foreign borrowing. And….yet another problem – the amount of Turkey’s
FX reserves (ex-gold) are around US$74bln. The country’s minimum required level of reserves is around US$59bln. There’s simply not enough cash in the bank to stop the TRY from falling.
On its own, Turkey is a small economy but the risk comes from understanding which parties are lending to Turkish businesses and the government.
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Which Country’s Banks are the Most Exposed to a Turkish Financial Crisis?
Country Amount (USD)
Spain $83.9bln
France $37.0bln
UK $18.7bln
US$17.7bln
Germany $17.5bln
Italy $16.9bln
Japan $14.0bln
