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Turkish lira favored by BofA strategists, with potential for 10 pct returns: report

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The Turkish lira is the top pick among currencies in eastern Europe, the Middle East and Africa, according to Bank of America Corp. (BofA) strategists, who foresee nearly 10 percent returns with a carry trade strategy, Bloomberg reported on Thursday.

Borrowing in US dollars and investing in the lira has gained popularity this year as investors trust Turkey’s efforts to reduce inflation and adopt more conventional economic policies. Bank of America strategists, including Mikhail Liluashvili, recommended buying lira forwards, citing higher summer tourism revenues bolstering the country’s finances.

“We are long TRY due to high carry, positive current account seasonality, and tight monetary conditions,” Bloomberg quoted a report by the BofA strategists as saying.

Carry trades on Turkish assets, which had been largely abandoned due to unorthodox measures, have made a comeback in recent months. Significant rate hikes following a policy shift toward conventional economic practices have attracted investors. The lira has been the best-performing carry trade in emerging markets over the past six months, gaining 13 percent, according to Bloomberg data.

Bank of America strategists warned of the risks of crowding in the lira market, which could be vulnerable to unexpected shocks. They noted that some investors might find Turkish government bonds more appealing.

Meanwhile, Citigroup Inc. strategists described Turkish assets as being on the verge of a “renaissance moment.” Analysts, including Luis Costa, indicated that the performance of the lira and bonds will largely depend on the central bank’s ability to re-anchor inflation expectations.

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