Advertisement
Features

Rattled investors flee Turkey

Investors' flight form Turkey, after Recep Tayyip Erdogan won last Sunday’s election, is making a nasty recession all the more likely.

902_MW_P04_Markets_Bottom
Erdogan wins: will he pick another fight with the central bank?

You wouldn't think investors have become concerned about Turkey, says Swaha Pattanaik on Breakingviews. When President Recep Tayyip Erdogan won last Sunday's election, the Turkish lira bounced by almost 3% against the US dollar, and the stockmarket ticked up.

But the reaction reflected "relief that the country had avoided political gridlock", not an endorsement of an increasingly authoritarian president's policies. "How much he compromises the independence of the central bank will be fundamental" in Erdogan's next five-year term, says Marcus Ashworth on Bloomberg View. He has become notorious for picking fights with the bank, always insisting on keeping interest rates low to bolster growth. This has undermined confidence in the bank's efforts to quell inflation.

Advertisement - Article continues below

It has raised rates by 5% since April, but it may be a case of too little, too late. Prices are rising at an annual rate of 12%, propelled partly by overspending and a government-induced credit boom. Investors fearful of a hard landing have begun to vote with their feet, sending the lira down by a quarter against the greenback in 2018.

Turkey is especially vulnerable to money leaving the country owing to its current-account deficit, which must be plugged with foreign capital. It is in debt to the rest of the world, and much of the debt is in (increasingly expensive) dollars. The International Monetary Fund estimates that Turkey relies on external financing for about 25% of its national income, notes Ashworth.

So as rattled investors flee, they make a nasty recession all the more likely. Of course, Erdogan could suddenly learn to stop interfering in the economy. But it's not the way to bet and it may be too late now anyway.

Advertisement
Advertisement

Recommended

Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Emerging markets: buy when the news is bad
Emerging markets

Emerging markets: buy when the news is bad

Emerging markets are being squeezed by local turmoil and by more general factors. But bad news can spell opportunity for investors.
5 Nov 2019

Most Popular

Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020