Turkish Lira (TRY) Exposed Stocks to Watch as Volatility Reaches Crisis Highs

Turkish Lira Analysis and News

  • Unorthdox Monetary Policy View to See TRY Remain in a Downward Spiral
  • Turkish Lira Implied Volatility Highest Since 2018 Currency Crisis
  • Spain Most Exposed to Turkish Lira Weakness

The Turkish Lira continues to garner interest with the currency’s downward spiral showing very little signs of slowing. This is despite attempts by the Turkish Central Bank to contain weakness via interventions as seen during yesterday’s session. However, as President Erdogan continues to reiterate his unorthodox monetary policy views, stating that he will never support higher interest rates, not even in the current inflationary enviroment, where headline CPI is projected to hit 20% on Friday. The path of least resistance remains higher for USD/TRY.

CBRT Intervention Undone by Erdogan’s Rhetoric Towards Higher Rates

Turkish Lira (TRY) Exposed Stocks to Watch as Volatility Reaches Crisis Highs

Source: Refinitiv

Elsewhere, with reports that Erdogan had removed the Turkish Finance Minister, replacing them for a strong supporter of his low-interest rates view, another record low for the Lira looks likely. Taking a look at the option markets and perhaps somewhat unsurprising, 1-week implied volatility is at the highest since the August 2018 currency crisis. However, with volatility at the current extremes sometimes a risk for traders, it is worth looking at other less volatile assets that have exposure to the Turkish Lira.

Turkish Lira Currency Volatility at Highest Level Since 2018 Crisis

Turkish Lira (TRY) Exposed Stocks to Watch as Volatility Reaches Crisis Highs

Source: Refinitiv

Turkish Exposed Assets

BBVA: In a month where the Turkish Lira saw its sharpest drop since 1994, falling over 40% against the USD, the Spanish bank, BBVA, which ranks among the largest stocks with the IBEX 35, fell 22%, the largest drop since the Q1 2020 Covid crash. The bank is typically viewed as the most exposed European bank to Turkey, given its 49.9% stake in Garanti. What’s more, with Spanish banks having the largest loan exposure to Turkey, roughly $63bln (Figure 1.), this makes the IBEX 35 more exposed to the country, relative to its counterparts.

BBVA vs USDTRY Inverted

Turkish Lira (TRY) Exposed Stocks to Watch as Volatility Reaches Crisis Highs

Source: Refinitiv

Figure 1. Spain Most Exposed to Turkey

Turkish Lira (TRY) Exposed Stocks to Watch as Volatility Reaches Crisis Highs

Source: BIS

BNP Paribas: The French bank is said to own 50% of the TEB Holding JV with Colakoglu group. Although, they do note that the Turkish business is largely self-financed. During November, company shares fell a rather modest 4.8%, largest drop since June.

Unicredit: The bank have a 20% stake in Turkish bank Yapi Kredi, however, they have stated that they will exit the Turkish market prior to March 2022, by selling its stake. In terms of company performance, the bank saw its worst monthly performance of the year in November, down 6.4%.

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