(Bloomberg) -- The Turkish lira is the best bet among currencies in eastern Europe, Middle East and African, according to Bank of America Corp. strategists, who see the potential for almost 10% returns with a carry trade strategy. 

Borrowing in U.S. dollars and investing in lira has become a popular trade this year as investors put their faith in Turkey’s efforts to bring down inflation and return to more conventional economic policy. Bank of America strategists including Mikhail Liluashvili recommended investors buy lira forwards as higher summer tourism revenues boost the country’s finances. 

“We are long TRY due to high carry, positive current account seasonality and tight monetary conditions,” they wrote in a report. 

Turkey’s World-Beating Lira Carry Trade Has Room for More Gains

Carry trades on Turkish assets, which were largely abandoned years ago after the imposition of raft of unorthodox measures, has made a come back in the past months, as steep rate hikes following the policy pivot that promised aligning Turkey back with conventional economy policies started to lure investors. The lira has been the best-performing carry trade in emerging markets over the past six months with a gain of 13%, data compiled by Bloomberg show. 

The Bank of America strategists cautioned about crowding in the lira, which could be risky if there’s an unexpected shock to the market. For some investors, Turkish government bonds may be more attractive, they wrote. 

Separately, Citigroup Inc. strategists said Turkish assets are on the verge of “a renaissance moment.” Analysts including Luis Costa said the performance of the lira and bonds will be shaped mainly by central bank’s success in re-anchoring inflation expectations. 

Citi Says Turkish Markets ‘On Verge of a Renaissance Moment’

Market Metrics

  • USD/TRY little changed at 32.2082 as of 10:51am in Istanbul
  • 5-year CDS little changed at 264bps
  • Borsa Istanbul 100 Index +0.3% to 10,931 points
  • U.S. Treasury 10-year bond yield little changed at 4.43%
  • Brent crude steady at $81.86 per barrel

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