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Why GAM is very negative on Turkey

Why GAM is very negative on Turkey

GAM Investments does not have holdings in Turkish debt for over a year now, according to Paul McNamara, the company’s investment director.

‘One country we are very negative on is Turkey. We really don’t want to hold any Turkish bonds and currencies,’ McNamara said.

‘That’s been the biggest deviation from benchmark we had for a long time,’ he added.

McNamara, who is the lead manager for the company’s emerging market bond and currency long only and hedge fund strategies, said Turkey has the classic emerging market (EM) financial crisis.

One of the main reasons McNamara does not invest in Turkish debt is because of the country’s high level of foreign debt and currency borrowing.

‘A lot of that money gone to property development, and the construction sector is far too big as a share of gross domestic product,’ he said.

He added: ‘In a lot of ways, a lot of same things going on in Turkey now are what we saw in Thailand in 1997 and the broader Asian crisis.’

While EM local currency debt is down nearly 5% since mid-April and almost 1% year-to-date, McNamara said he is positive on the Russian debt in rubles and Brazilian debt in reais.

Despite being fairly cautious at the start of the year, McNamara said he thinks Brazilian bonds are looking very attractive now. He is also positive on Russian debt given the selloff following the sanctions against Russia. 

McNamara said the recent weakness in EM local currency debt is almost entirely due to US dollar strength and he does not expect this drag to be sustained.

He said investors’ appetite for EM debt tends to follow returns.

Citing examples, McNamara said there was preference for hard currency in 2014 and 2015 when it was the better performing sector. Investors, however, started to switch to local currency debt in 2016 and 2017 when it performed better.  

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