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Speculation: Turkey stuffing for Israeli investors

A sharp sell-off in the Turkish lira illustrates once again that there’s no such thing as a free lunch in the FX markets and has left speculators well and truly plucked.

Eliezer Fishman Eliezer Fishman: said to have been hit for $400 million

“Slowly up the stairs and rapidly back down on the escalator” is how one veteran foreign exchange trader describes the typical behaviour of high-yielding emerging-market currencies. Those speculators who got burnt by the recent plunge in the Turkish lira will fully agree with the sentiment. Turkey had been portrayed as one of the bigger success stories in the emerging markets. The country’s inflation had fallen from a peak of around 73% at the beginning of 2002 to almost 7% in June 2004. A booming equity market and hopes of European Union membership added to the country’s investment attractions.

The Turkish lira also came into focus, and not purely because it was the medium required to buy into the country’s apparent success story. With one-month deposit rates trading above 70% five years ago, the lira became one of the favoured cost-of-carry plays. This strategy, according to well-placed sources, was incredibly popular with Israeli punters.

Until the recent blow-out, one-month Turkish deposit rates were trading at around 13.5%,

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