By Jonathan Spicer and Marc Jones
ISTANBUL/LONDON (Reuters) – U.S. investment giants Pimco and Vanguard have bought local Turkish assets in recent months, senior executives said, betting that the country will maintain high interest rates after years of erratic policymaking under President Tayyip Erdogan.
Interviews with the executives show that two of the world’s biggest investors, which together manage nearly $10 trillion in assets, have grown constructive on Turkey since its newfound economic orthodoxy, including rate hikes in June, following Erdogan’s re-election.
Pimco and Vanguard did not elaborate on the specific size of their purchases but their investments are a sign of confidence after a years-long exodus of foreigners that left Turkey well to the sidelines of global emerging markets.
“We are constructive on Turkish assets, in particular local currency assets, due to the tightening in financial conditions to rein in spending and control inflation and the gradual easing of regulations that distort the asset prices,” said Pramol Dhawan, managing director and head of emerging markets at Pimco, which oversees nearly $2 trillion in assets.
Vanguard, the world’s second-largest money manager with nearly $7.5 trillion, bought Turkish local bonds without hedging late last year after Nick Eisinger, co-head of Emerging Markets Active Fixed Income, and a few other investors visited the country for meetings.
“It was a bit of a watershed moment,” Eisinger said in a separate interview, noting that benchmark yields later dropped by 500-600 basis points from November to mid-December, before partially rebounding.
Interest from abroad hit a six-year high last month while credit default swaps (CDS), a key risk measure, have plunged to less than half of levels in May, when Turks re-elected Erdogan.
That marks a dizzying departure from the days in which foreign investors largely abandoned Turkey as Erdogan oversaw a policy of slashing interest rates in the face of soaring inflation, and tightened authorities’ grip on foreign exchange, debt and credit markets, leaving them largely state managed.
Yet in June, the president named a new cabinet and central bank chief, Hafize Gaye Erkan, who has since hiked rates by 3,400 basis points to 42.5% to rein in inflation that neared 65% last month.
The bank says it will halt rate hikes as soon as possible but maintain tight monetary policy as long as needed. Authorities have also begun untangling dozens of regulations in order to free up banks and financial markets.
(Reporting by Jonathan Spicer and Marc Jones; Editing by Emelia Sithole-Matarise)
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