Market meltdown in Turkey risks spreading abroad - report

Market meltdown in Turkey risks spreading to other developing nations, Bloomberg reported on Saturday.

The value of the Turkish lira slumped again last month after President Recep Tayyip Erdoğan sacked central bank governor Naci Ağbal.

Agbal had sought to rein in inflation and stabilise the value of the lira by raising benchline interest rates. However, Erdoğan has repeatedly opposed rate hikes on the unorthodox economic basis that they cause inflation.

Bloomberg said economic instability in Turkey could “ripple across emerging markets in a repeat of the 2013 taper tantrum”.

In 2013, Turkey, Brazil, South Africa, India and Indonesia, collectively dubbed the “fragile five” by investors, saw market turmoil after the U.S. Federal Reserve indicated it would begin tapering its bond-buying programme, raising the prospect of decreased liquidity in the global economic system.

“With Turkey beginning to crack, we see significant fragility being under-priced in a number of emerging-market countries,” Bloomberg cited Patrick Kenney and Santiago Pardo, money managers at Man Group, as saying in a report to investors.

Other analysts were not so pessimistic, pointing to better international conditions for emerging countries than in 2013, including a weak dollar, rising commodity prices and resilient signs of economic growth after the COVID-19 pandemic, Bloomberg said.

“People are anchoring to what happened during the last large yield move - the Taper Tantrum - even though conditions are different in pretty much every way,” Whitney Baker, the New York-based founder of market insight firm Totem Macro, told the news outlet.

Turkey’s “unorthodox policy stance”, out of step with other developing nations, was also a potentially distinguishing factor, Bloomberg said.