Brexit-Battered Pound Seen Losing Out to Emerging-Market Laggard

(Bloomberg) -- Traders running out of ways to express their bearish view on the British pound can heed Societe Generale SA’s advice and pit it against the worst performing emerging market currency over the last 12 months: the Turkish lira.

Sterling is headed for its longest streak of weekly losses against the dollar in two years as negotiations over its divorce with the European Union and tepid economic data sap sentiment. Societe Generale suggests investors should now short the currency against that of Turkey as growth prospects for the two economies diverge, according to a note published on Thursday.

“We are quite worried about sterling heading into the Conservative Party conference” in October, London-based strategist Phoenix Kalen said on Friday. “Optimistic views on a soft-Brexit outcome were getting priced in a few weeks ago, and the market is starting to come off of that.”

The call also underscores the bank’s bullish stance on emerging markets. The lira missed out on a rally this year because of Turkey’s own political turmoil -- but Societe Generale reckons that under-performance is now coming to an end. They are most bullish on the currency among its developing-nation peers.

The bank recommended shorting GBP-TRY via three-month forwards, targeting a move to 4.3223 over a three-month horizon, according to its note.

To contact the reporter on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net.

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Samuel Potter, Cormac Mullen