Investors weigh in on potential spillover effects from the fall in the Turkish lira
Maya Bhandari, multi-asset fund manager, Columbia Threadneedle Investments
“Turkey’s current quagmire is quintessentially EM, but today applies uniquely to Turkey. While many countries have large external financing needs, Turkey stands out for its heady short-term external debt, used to fund a wide current account deficit, while persistently maintaining ultra-loose policy. What could make Turkey a systemic EM problem is capital controls, triggering large EM fund sales and forced fund suspensions.
“The DM impact is chiefly in European banks. However, we find exposures to be far smaller than headlines suggest: if Turkey defaults overnight, some of the most exposed Spanish banks would probably wipe just one year of earnings.”