Turkey’s boom will turn to bust

Turkish stocks have just reached a new record.But with high debt, a weak lira and an authoritarian government, Turkey’s boom could quickly turn to bust.

"Emerging-market equities are the darling of global markets," Isik Okte of BNP Paribas told Bloomberg. And Turkish stocks have just reached a new record. So it's no wonder local firms are lining up to float, with initial public offerings (IPOs) worth up to $4bn expected this year. That would eclipse 2007's all-time high.

But there's another incentive to tap global equity investors' funds and it highlights the economy's vulnerability. Turkish companies have racked up a record $326bn of foreign-currency debt. Many have already restructured their loans, and have now opted to tap the equity markets instead. Their borrowings will become more expensive as the local currency, the lira, weakens.

Sadly, it is doing exactly that, as The Economist points out. It has slipped by 40% against the dollar in two years, a result of concern over the government's authoritarianism and tendency to harangue the central bank when it tries to temper inflation with interest-rate hikes. Throw in a state spending spree and a credit bonanza over the past year, and Turkey's boom could turn to bust quickly. Its current-account deficit of 4.7% of GDP means it is especially vulnerable to foreign capital turning tail if sentiment towards emerging markets shifts. Steer clear.

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Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.