Turkey might not be the one nation going through a forex disaster given the prospects of upper rates of interest in the U.S., outstanding emerging markets investor Mark Mobius mentioned Tuesday.
“Yeah, course it can,” Mobius informed CNBC’s “Closing Bell” in response to a query on whether or not the sharp depreciation seen in the Turkish forex — the lira — might unfold to different international locations.
“With higher interest rates in the U.S., all these other countries that have debt in dollars will be hit,” mentioned the investor, who’s the founding associate of funding agency Mobius Capital Partners.
The Turkish lira crashed to a file low Tuesday because the nation’s President Recep Tayyip Erdogan defended his central financial institution’s continued contentious rate of interest cuts amid rising double-digit inflation.
Mobius didn’t specify which different international locations are weak to a forex disaster. But he mentioned the excellent news is that for the reason that 1997 Asian monetary disaster, many emerging markets have borrowed extra in their native currencies.
Risk of forex disaster
An evaluation launched final week by funding financial institution Nomura discovered that the 4 emerging markets most prone to an alternate price disaster are Egypt, Romania, Turkey and Sri Lanka.
The evaluation thought-about indicators equivalent to exterior debt as a share of gross home product, the ratio of overseas alternate reserves to imports, and inventory market index.
“Looking ahead, the prospect of the Fed normalizing monetary policy amid China’s deepening economic downturn is not a particularly good combination for [emerging markets],” Nomura mentioned in its report final week.
The U.S. Federal Reserve is about to start out tapering the tempo of its asset purchases this month. Most Fed officers have mentioned they will not take into account elevating charges no less than till the taper winds down, however markets have been searching for a quicker timeline for charges, with the preliminary hike now priced in for June 2022.
That has come at a time when emerging markets are confronted with different challenges equivalent to rising fiscal and present account deficits, in addition to rising meals costs, mentioned Nomura.
Higher rates of interest do not essentially imply “a big downturn” in markets, mentioned Mobius.
Companies with robust earnings and good margins would nonetheless do effectively in an setting with rising rates of interest, the investor mentioned, including that India and Taiwan are his two most popular markets.
As for Turkey, Mobius mentioned a weaker forex might result in higher exports in another country.
“The companies that we own in Turkey are having earnings in dollars, in euro. And with a lower and weaker Turkish lira, they’re doing better because their costs are much lower,” he mentioned.
— CNBC’s Natasha Turak, Jeff Cox and Thomas Franck contributed to this report.