Thomas Clarke is invested in the world’s worst-performing currency this quarter, but he’s not worried. In fact, he’s tempted to buy more.

Clarke, who helps manage around $54 billion of assets for William Blair International in London, says the Turkish lira is undervalued. He thinks policymakers have learnt their lesson after a blunder last year dragged the economy into its first recession in a decade, and cost President Recep Tayyip Erdogan’s ruling party control over the nation’s biggest cities in municipal elections in March.

The glimmer of bullish sentiment comes as the lira shed another 10 per cent of its value since March — more than any other currency in the world tracked by Bloomberg — and has prompted swap traders to position for another interest-rate hike. Last year, Erdogan’s repeated public declarations of his distaste for tighter monetary policy knocked the lira to a record low.

“I think he has learnt his lesson from the crash,” Clarke said, adding that the latest bout of depreciation has made the Turkish lira more attractive that it was a few months ago. “The currency market can intimidate even Recep Tayyip Erdogan.”

For some Turkey watchers that’s a bold bet.

Turkey ruled this week for a re-run of the vote in Istanbul, where the governing AK Party suffered a narrow defeat. Investors interpreted the move as another manifestation of the president’s influence over institutions, which has raised the risk of political turmoil and increased the impetus for new stimulus measures that could fuel runaway inflation.

The currency has weakened in all but two of the last 16 trading sessions, an echo of the volatility that marked a violent slump in August and a sign of growing investor unease. The lira fell as much as 1 per cent against the dollar on Thursday, touching an eight-month low of 6.2457.

Valuation Play

The lira’s real-effective exchange rate, which adjusts for inflation differentials with Turkey’s major trading partners, is about 10 points away from its lowest level since at least 2001, according to the latest data.

“I don’t want to lose the sight of the fact that it is a very, very cheap currency with also a very, very high carry,” Clarke said. “We have a predisposition to buy more liras.”

He’s not alone in chasing the asset, which boasts one of the highest carry potentials in emerging markets, even when taking into account its volatility. Data from the Tokyo Financial Exchange last month showed Japanese retail investors held the biggest long positions in the currency versus the yen since early August.

And as for Erdogan, “he does have a lot of executive power over Turkey and Turkish institutions but he does not have executive power over the financial markets,” Clarke said. “That is a kind of a safety net that I think prevents Turkish policy from being thoroughly compromised, which would be very dangerous and would probably result in to a one-way for the lira downwards.”