Goldman’s call is already being borne out by Lira’s plunge

Bloomberg

One of Goldman Sachs Group Inc.’s out-of-consensus calls for 2017 is already bearing fruit.
While big investors are positioned for Turkey to do well, analysts led by Caesar Maasry recommended greater caution in a report — shortly before the lira plunged to a fresh lows against both the US dollar and the euro.
The bank’s analysis of actively-managed mutual funds shows institutional investors are most keen on Brazil, India and Indonesia at the start of 2017, with Turkey coming in close behind as a “modest” overweight. China is the biggest underweight position in both equity and fixed-income portfolios, the bank said, while positioning on Poland is firmly neutral.
While the analysts said they broadly agree with investors, they’re more pessimistic than the market on Turkey and more optimistic on Poland. They point out that backing the right horse has become even more important as dispersion — or variance between the performance of different asset classes — returns to the wider market. While Brazilian and Russian equities posted gains of about 30 percent in 2016, they note, China and Malaysian stocks lost 5 percent in the same time frame.
“We are surprised to see the overweights in Turkey, as this market tends to stand out as the most vulnerable on a macro basis,” the Goldman analysts said. That positioning means some emerging-market investors will be smarting today as the lira fell, hurting the exchange value of the Turkish assets that are among their favorite bets for 2017. The currency has weakened more than any of the world’s major currencies this year, and by some stretch: its 5.5 percent drop since Jan. 1 is almost double that registered by the next-worst contender, the Mexican peso.
Investors are not alone in being caught out. Economic analysts appear to have been unprepared for the speed of the lira’s depreciation, with the currency already weaker than all but one of the 44 estimates Bloomberg has compiled on where the lira will be by the end of March. From these levels, it would take a 6 percent recovery against the dollar for the currency to meet the median prediction.