0732 GMT September 23, 2019
Investors have withdrawn $7.6 billion in assets so far this year and look to keep pulling their money out of Turkey as a result of war in Syria and tensions with Russia, London-based Capital Economics and Swedish financial group SEB said.
Investors apparently voted with their feet last month after dumping $1.4 billion when President Recep Tayyip Erdogan’s AKP party swept back in to power.
The victory initially triggered a rally in assets but outflows resumed as Turkey chose to wade deeper into the Syria conflict and sparked its worst diplomatic crisis with Moscow in recent years after downing a Russian bomber.
The Turkish lira is currently facing its biggest annual fall since 2008 but it looks set for a rout amid concerns that the new government, emboldened by the election win, would tamper with the central bank’s policies.
President Erdogan favors low interest rates and many investors expect him to push for lower borrowing costs even as inflation accelerated and the lira weakened.
Per Hammarlund, chief emerging markets strategist at SEB, told Bloomberg that he expected the Turkish currency to fall 3.7% to three lira against the US dollar in December.
William Jackson, senior emerging markets economist at Capital Economics, saw the lira falling 11% to 3.25 against the dollar at the end of 2016.
Turkey has the biggest current-account deficit among the Group of 20 nations. The country is highly dependent on external debt which makes is vulnerable to shifts in investor sentiment.
On Friday, Moody’s Investors Service kept a negative outlook on Turkey’s credit rating, citing its “large external funding needs” and geopolitical risks.
Turkish Deputy Prime Minister Mehmet Simsek said Monday tensions with Russia could cost Turkey's economy $9 billion. Russian President Vladimir Putin has already ordered economic sanctions on Ankara and pledged additional measures.
Fitch and Moody’s rate Turkey at the lowest investment grade, and Standard & Poor’s ranks the sovereign one step below in junk, Bloomberg reported.