The writer is global head of research at Ashmore Group For emerging market investors, there has been a marked change in the signals from Turkey. A set of reforms has placed it back in the universe of countries with investable local currency assets. For years, heterodox policies that combined low interest rates and state-led credit expansion led to high inflation and a very vulnerable lira. Consequently, Turkish local assets became a structural underweight position for emerging market investors.
After many false starts in the past, the question on whether Erdoğan will “U-turn” on these orthodox policies remains. This time, however, the reforms seem to be based on solid ground. In our view, Erdoğan understands that lira stability is now correlated to his popularity. Despite his previously unorthodox stance, the president is no stranger to the positive impact of orthodoxy on GDP.