Increasingly dire straits for Turkey

Turkey’s problems are going from bad to worse. Inflation is running at almost 16%, a 15-year high; faith in the government has deteriorated; and the currency has fallen by about 28% against the US dollar.

Turkey's problems are going from bad to worse. Inflation is running at almost 16%, a 15-year high. Faith in the government already in tatters after President Erdogan appointed his son-in-law as finance minister has deteriorated further after the US imposed sanctions on two senior government ministers, in protest against Turkey's detainment of an American pastor over espionage and terrorism charges. This sent the lira tumbling. The currency has fallen by about 28% against the US dollar in the year to date.

Advertisement - Article continues below

Turkey has promised to send officials to Washington "to defuse the rift", reports Adam Samson in the Financial Times, but markets were "unnerved", with the yield on ten-year Turkish government debt touching 20%. Turkey's large current-account deficit (which leaves the economy dependent on overseas funding) means it is vulnerable to capital flight, which tends to be self-fulfilling. The cost to insure Turkish debt against default is at its highest since 2009, notes the FT.

It's hard to say how this will play out, says William Jackson on Capital Economics. Erdogan opposes raising interest rates, yet the scale of the fall suggests the central bank may be allowed to intervene soon to prevent any further collapse. The Turkish stockmarket is now down 40% this year in dollar terms, notes Reuters, second only to Venezuela as the worst-performing of 30 emerging markets. We wouldn't see this as a buying opportunity yet.




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
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?

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

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


These seven charts show exactly why you must own gold today

Covid-19 is accelerating many trends that were already in existence. The rising gold price is one such trend. These seven charts, says Dominic Frisby,…
3 Jun 2020
EU Economy

Why a stronger euro is good news for investors

The fragile state of the eurozone has for a long time brought the threat of deflation. But the ECB’s latest moves have dampened those fears. John Step…
5 Jun 2020
Emerging markets

Putin’s grip on power is slipping

The Russian president had been looking forward to a spring of triumphs, including a new constitution that strengthens his hand. Now he faces multiple …
6 Jun 2020