Turkish, SA credit risk rises as China spat reverberates

The cost of insuring against Turkish and South African debt surged on Tuesday as a trade spat between the United States and China escalated, increasing the perceived risk of investing in emerging market assets.

Turkish five-year credit default swaps (CDS) rose as much as 15 basis points (bps) to 338 bps, the highest level in more than 2.5 years. South Africa’s 5-year CDS climbed 11 bps to 229 bps, the highest level in more than 18 months.

Turkey and South Africa, along with Ukraine, Argentina and Brazil, are cited by economists as the more risky economies in major emerging markets because of their vulnerabilities which can include high inflation, wide current account deficits or political risk. Argentina has signed a $50 billion loan accord with the International Monetary Fund to steady its economy.

The Turkish lira fell 0.8 percent to 4.74 per dollar on Tuesday, extending a decline this year to more than 20 percent. The South African rand slid 0.5 percent to 13.71.