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Investor Lessons For The Economic Crisis In Turkey


Turkey are going through an economic crisis to say the least. They are experiencing stock decline and you will also see that there has been a huge slide in the lira as well. This has stoked a lot of fears that there is going to be a contagion with the emerging markets. EM shocks are not to be worried about and they are nothing new either. In fact, they were rather expected. Some recent factors need to be on the radar for investors and this includes the strength of the US dollar and the tariff policy as well. You also have to take into account the years of emerging markets and the fact that dollar-based borrowing is on the rise. Long-term investors should be prepared to try and ride out the volatility of any emerging markets. Timing in the market will make the performance even worse and this could cause major problems for people in the future.

More investors of a younger age have now come to the stock market and this has been the result fa long-run. The Great Recession has ended and if things are done right then diversifying equities should be a part of the portfolio mix. This means that whether people know it or not, there will be some kind of exposure to the emerging market. So it’s really time for them to know the answers to a few questions. Where’s Turkey rank on the countries for the MSCI index and what does this rank ultimately mean for their risk profile?

Of course, it’s important to know that people do check the currency exchange rates. For this reason it’s a known fact that two ETFs have managed to gather the most assets from their investors over the last year and they have also developed markets overseas as well. They have even taken from emerging markets and stock funds as well. They have around $40 billion between them and the two ETFs are at number 2 and number 4. They are all investor dollars that have happened over the last year. There has been some kind of ETF baseball work here. IShares have launched some core ETFs at a much lower expense ratio when compared to the older and much more popular EAFE and a lot of the money was also migrated to much cheaper options. This is when compared to being an overseas exposure. Investor assets were also migrating because financial advisors are strong believers in the idea of long-term diversification when it comes to stock investment.

So as Turkey’s crisis carries on and the lira tanks, there are some fears of an emerging market that is run on regional and even EU banks. This would of course, result in some kind of panic for investors. That being said, if people were to pull out of an emerging market then this would be the wrong move for a lot of investors. They are basing all of their decisions on market trading and this is according to the experts. If investors have constructed an investment portfolio that is more than designed to meet their needs of retirement then they should know that by dumping everything, they are going against the fundamental reason of why they started. When you look at things over a longer period of time, you will soon see that emerging markets then start to work again and that the overall trajectory has not actually changed in the last couple of days.

So what do you need to take note of here? You should note that Turkey is a very, very small part of the EM index. It doesn’t represent much at all when you look at the bigger picture, and you will also see that it doesn’t even register among the top 14 countries either. It is placed in a catch-category of the “other” countries and this represents less than 4% of the total ETF. Nick Colas is the co-founder of DataTrek research and he has pointed out that when you look at Western investors, you will see that contagion is the issue. Turkey itself is not an issue at all and their equities are actually way less than 1% of the MSCI market index. When you look at the equity market you will see that it is down by 51% and this is in terms of the dollar. That being said, this has very little impact on the diversified aspects that a lot of investors have. Colas also put a note on the research that he released.

He believes that the hit of the emerging market equities have been taken in the last couple of days and the lira has declined. It is down double-digits at the moment and Turkish equities in dollars has broken through some lows from 2008. This shows how right EM equities can be when you look at the economic or even currency crisis. When the country in question has a nominally low weighting it isn’t hard to see how the whole thing can come together. Now let’s look at the bigger picture. China, South Korea and even Taiwan have a 45% impact on the MSCI index. Mitch Goldberg is the president of the firm ClientFirst. He has stated that the popularity of ETFs are one of the many reasons why the volatility is going to spread across EM nations. As far as things are going right now, this is a huge concern. All emerging markets are now being traded as a sector and it doesn’t matter whether it is a period of stress or even a bullish period. It’s seems as though assets are now related to one another.

So let’s look at 2017. Every stock market around the world should try and be positive. The synchronised global growth is being thrown down and the only factor that matters here is the overall market. This works in both ways. So that brings about the question, is it even possible to get rid of this fantasy idea of having a market that is completely synchronised? Turkey is a symptom of the issue that there are too many emerging governments and corporations are borrowing money in dollars all the time. They now face the increasing cost of having that debt and this is because they are being weakened by their own currency.

Goldberg has come out to say that investors need to stop looking at these as if they are isolated. At the end of the day, they are not one-off events. They are actually commonalities and them developing is all to do with the US central bank being tighter than ever. A strengthening dollar and even tariff policies are now coming to an end and this is incredible to say the least. At the end of the day, Turkey really is just a symptom. It shows that too many emerging governments and even markets are borrowing massively and this is all happening in dollars. This combined with the weakening currency is showing that the problems that are being experienced now are more impactful than ever. There are trade tensions and this is hurting the emerging markets more than ever. The rising interest rates in the US and a strong dollar is even more adding to their woes. For this reason, investors have been pulling money out of the country. They are having to deal with global growth and this is what helped to excite investors earlier. They are running out of steam and it has even been noted that the major emerging markets are being devastated. In fact it is only the Mexican peso that is being held up against the dollar this year and investor confidence in the country is only surging. This comes after the presidential election.


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