Morgan Stanley ups Turkish local bond advice to neutral

With the uncertainties around the southeastern border being watched closely, Turkey's fixed income securities and foreign currency holdings are observed to have a more balanced risk-return profile according to a report by analysts from Morgan Stanley. The report suggested that any positive developments in politics will serve as a catalyst for a growth rally.

The Morgan Stanley analysts said they changed the advice on Turkey's local bonds from underweight to neutral considering a balanced valuation, and suggested that the 300 base points of real interest rate is too high. In the meantime, they have raised the their evaluation on government bonds to market-weight in tactical base, predicting a contraction by 25 base points in case of the formation of a coalition government.

Low oil prices and U.S. Treasury bonds interest rates support the fixed income securities, Morgan Stanley analysts reported, and stated that Turkey needs to purchase (dollars) in order to deal with the funding of the U.S. dollar and the global instabilities. On the other hand, the high current account deficit and the short position of the dollar in the Turkish private sector makes Turkey a vulnerable emerging economy in the medium term, the analysts said. They remarked that they still evaluate the Turkish lira as underweight while raising the stop loss level in dollar/TL positions to 2.74.