International Investments Question: Is Turkey a Good Bet or a Turkey

By Gary Scott

Yesterday’s message asked if emerging market currencies are good to hold and if so which currencies?

My belief that yes emerging market currencies are good to blend in one opinion. Jyske Bank says HOLD UP FOR NOW but yes they will be good. Only the future knows the real truth, but humor me for now. Let’s assume that we should at least consider investing in some emerging currencies.

This raises another question. How can we invest in emerging currencies? There are a variety of ways. We can invest in current (no interest) or savings accounts, buy bonds, equities or mutual funds that invest in that currency. The fund does not have to be denominated in that currency. Last week I had an irate reader write and complain that he wanted to invest in the Chinese currency, had instructed his bank to invest in a China fund and the stupid bank had invested in a china fund that was denominated in dollars not yuan.

The denomination of the fund does not matter. If the underlying investments are in Chinese bonds or stocks or other Chinese investments then the task has been accomplished. The dollar denomination just makes it easier to see how much the fund and the yuan rises or falls versus the greenback. Got it? If not send me a note to gary@garyascott.com and I’ll explain more.

Some investors may wish to invest in a mutual fund that invests in many emerging currencies such as the Jyske invest Emerging Markets Bond Fund or the Jyske Invest Emerging Markets Equity fund. For more on this gget in touch with Thomas Fischer at Fischer@jyskebank.dk

Those who use such funds let a professional manager make the decisions on “which currencies, bonds or equities and which emerging currencies.” The cost is usually a few percent up front and a percent or two each year.

In this case you can spend the saved time getting in a round of golf or take a quick fishing trip. Or in my case, I would take another walk in the woods ... perhaps stop for a soak in the Indian Trough. See Little Horse Creek

But we smarty pants wish to make these decisions ourselves. Either we like doing this or feel we can do a better job ourselves…..or just want to keep the fee. Whatever, here we are in the office, in front of the computer trying to figure out the best currencies and best investments for the job.

We can divide currencies into three lots. Those that seem like pretty sure things (and usually pay somewhat low interest rates), those that have some risk but could really turn out well and have really high interest rates and finally those that we should forget about or invest in as judicially as we do at the roulette table.

We’ll start with the middle group, those that have very high interst rates and could really do well, but also have the potential to flop.

Here are the interest rates on emerging currencies that are tracked by the Economist Magazine.

Our short list of high interest rate currencies is Brazil, Venezuela, Indonesia, Russia and Turkey. Let’s throw in Argentina and Pakistan as the 9%+ interest rates are close enough.

Tomorrow, we’ll look at the Turkish Lira but today I would like any of you who also have opinions to lend them. I have two already and would like to share more…pro or con.

Here is the pro (from one of my investment advisors by the way).

“May I suggest that you start to invest your pension into the high yield bond, TRY 10,000% European Investment Bank AAA maturing 28.01.2011 with an effective yield of 11.32%. The Turkish Lira has declined some 5-6% and is back where it was a couple of years ago. I do not think this will not drop further.”

Here is the con.

“Turkey in the EU? – Not unless they change their politics from what is happening as we speak – which is a change to a more fundamentalist style of Islam. 10 years is a lot of time – especially if you believe, as I do since the evidence is more or less incontrovertible, that we are in the “third jihad”.

This religious aspect is why I like Turkey so much. We’ll look at this in more detail tomorrow.

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