Turkey Plays Chicken – It Has Just Started
Yes. We rejoice with rate hikes from Turkey because we are not Turks with mortgages.
The Turkish lira jumped 3.5% instantly but bondholders aren’t really cheering except maybe the USD bonds and some of the long end papers which rose off their lows, with the curve flattening out.
It is like a game of chicken, as India hiked the day before but not drastically like the 5.5% hike of Turkey. What would a Turk do ? Get out ? Like the Argentinians are doing.
Just take a look at the USDTRL chart and we can guess what is going through people’s minds.
All gains virtually wiped out on the day because the new game plan is for change in power. Look at Ukraine which achieved what Turkey cannot without rate hikes, just because their premier resigned.
India’s small time hike yesterday which was successful but their problems will start when their elections near. Malaysia stayed put today, saving their bullets.
You see, the Turkish scandal could happen anywhere and they are penalised because they happen to be a democracy. Now, if it had happened in China, we can be assured that we will see no evil or hear no evil or even smell it !
By their actions, Turkey has appeared to have played all their cards at once and the market scents the blood. It brings forth memories of the Asian crisis as the world watched helpless little central banks and all their resolve crumble, wave upon wave of selling.
In this corruption scandal, the markets have found a new unexplored trail of scandals to exploit. Anyone flying above the radar will be instant suspects, especially if they are 30 year old Iranians married to pop stars and living in a 72 million dollar home.
Should we start trading off the Corruption Perception Index ? http://cpi.transparency.org/cpi2013/results/
Do a Malaysia (ranked 53) vs Indonesia (ranked 114) trade ?
As I type, the Russian Ruble is nearing her historical high (and Russia is ranked 127 !), after promising to bail Ukraine out and dismissing a rate hike on their part.
Methinks we are just on the cusp of something here, the outflows that began in May last year culminating into exodus as holes start to show and fingers start to point and skeletons fall out of the closet.
Be safe and happy new year.