Turkey may spiral out of control, Nordea tells Bloomberg

Nordea, Scandinavia’s biggest bank, is shorting Turkey, betting that financial turmoil will intensify as good governance erodes, according to Bloomberg.

“It may even spiral a little bit out of control,” said Thede Ruest, who helps oversee funds of $500 million.

The Turkish lira has slumped almost 30 percent against the dollar this year and bond yields have hit record highs. Its stock market is the world’s worst performer in local currency terms. President Recep Tayyip Erdogan has heightened investor concerns about the economy by calling on the central bank to lower interest rates and tightening control over the institution, which is supposed to be independent from politicians.

“It’s clear that in Turkey you see a prime example of an erosion of governance,” Ruest said.

Turkey may also be vulnerable to higher U.S. interest rates, he said.

“Even now the U.S. rates can move higher. That’s creating some sort of headwind also for emerging market debt.”

Nordea is overweight Russia, even amid international sanctions.

“We’re being compensated for the headline risk and the economy is doing fine despite the sanctions being in place,” Ruest said. “Also, the central bank has not too long ago gained a lot of credibility in the market as it started to opt for inflation targeting.”

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