Summary: JPMorgan has exited its core overweight position in the Turkish lira and is now handling the currency through shorter-term, tactical allocations after realizing a 55% total return.
The bank originally held the lira as a core overweight in its GBI-EM model portfolio beginning in early September 2023, according to strategists including Anezka Christovova. That core position briefly halted during Turkey's municipal elections in March 2024 before resuming.
JPMorgan trimmed the size of the lira position on April 30 and subsequently fully realized profits, the strategists said. The move marks a transition from a longer-term, core allocation to a more nimble, short-term trading stance.
In their note, the strategists argued that recent developments create limited near-term downside for the lira. They suggest that Turkish authorities may prioritize keeping foreign-exchange volatility low and that this focus could act as a stabilizing policy tool for the currency.
Nevertheless, the bank has shifted to a tactical approach because of a number of factors that reduce the appeal of holding a core overweight. These include a lower expected return profile on lira assets, rising balance-of-payments funding requirements, the potential for pressure from higher energy prices, and an elevated risk of an early election.
The strategists also observed that election-related dollarization episodes have tended to be better addressed through shorter-maturity lira carry positions rather than longer-dated core exposures. That assessment underpins JPMorgan's choice to focus on tactical, shorter-duration currency trades going forward.
Contextual note: The strategists framed the shift as a response to evolving return expectations and specific economic and political pressures. They did not point to any immediate, large-scale threats to the currency, but emphasized that the aggregate of funding, energy, and political risks warranted a change in positioning.
The decision reflects a rebalancing of risk and return within JPMorgan's emerging-market local currency framework, moving profits taken from a strong lira performance into a posture that favors flexibility and shorter maturities.