The real reason to worry about Turkey

There are lots of things to be frightened of in the world of finance. But Turkey should probably be top of the list, says Merryn Somerset Webb.

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Turkey is the most likely trigger for an emerging-markets crisis
(Image credit: 2017 Getty Images)

What should you be most frightened of, financially, at the moment? There's a long, long list out there.

The credit bubble in the UK (don't think about car finance it really will keep you awake at night). The fact that, while we don't talk about it any more, QE is unlikely to ever be really unwound. What inflation will do to bond prices and to the value of every pension fund in the Western world. The nasty looking over valuation of US equities.

But there's one thing that doesn't get quite as much attention as it should: Turkish debt. Right now, while overall public debt isn't particularly high (by bonkers Western standards, anyway), Turkey has around $400bn in external debt (owed outside the country).

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Russell Napier has been talking about the danger inherent in this for some time. Back in 2015, when he was asked what he saw as the most likely trigger for an emerging-markets crisis, he answered that if he had to pick one he would go for Turkey introducing capital controls and then not paying back either the principal or the interest on its debt.

That would be bad in itself (Turkish debt is held globally) but there would also be contagion: "when credit stops flowing to one emerging market it stops flowing to all of them".

It's worth noting that $400bn while a tiny number in the context of global debt flows is about the same amount as borrowed by Bear Stearns. And look how much chaos that caused. There's a good interview with Russell here that mentions the matter (I'll try and do another one with him myself soon our old ones are here). It was done a few years ago.

If you want to scare yourself, think about how much the lira has weakened (the weaker the lira the harder it is to finance the debt) and of course how much Turkish politics have changed since (more on this in the magazine). Takes your mind off the car finance problem doesn't it?

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.