Mobius warns of Turkey’s peril to emerging markets

Bloomberg

Wed, Aug 15, 2018 - Page 10

There is a “real possibility” that Turkey would impose capital controls to stem the plunge in the lira, which would be bad for the whole developing-nation asset class, veteran emerging-markets investor Mark Mobius said.

“If Turkey is forced to close the foreign exchange window so that foreign investors cannot get out, that will be a very, very bad example for other emerging markets,” Mobius said in a Bloomberg TV interview with Rishaad Salamat and Haidi Lun. “As you know in the past during the Asian crisis, Malaysia did that and it was was very, very bad news.”

While some investors are starting to weigh the possibility, the Turkish government has said repeatedly that it would not limit the flow of foreign money in and out of the economy.

Turkish President Recep Tayyip Erdogan said over the weekend that the country would not raise interest rates or accept an international bailout.

Mobius, who left Franklin Templeton Investments earlier this year to set up Mobius Capital Partners LLP, said he was “deeply concerned” by the standoff between the US and Turkey over Ankara’s detention of US pastor Andrew Brunson.

The tension between the two nations, coupled with concern over Turkey’s current-account deficit and runaway inflation, has dragged the lira down by about 26 percent this month.

US National Security Adviser John Bolton on said that there was nothing further to negotiate until Brunson is freed, according to two people familiar with the matter.

Mobius’ latest view on Turkey contrasts with what he said just more than a month ago.

Erdogan has been able to stay in power because of his ability to keep the economy going, Mobius said in a July 11 interview after the Turkish president tightened his grip on the central bank and appointed his son-in-law as economic czar.

Malaysia introduced capital controls in 1998 during the Asian financial crisis. Although criticized at the time by the IMF, it was ultimately seen as helping to stabilize the nation’s economy.

While the current turmoil in emerging markets is creating opportunities, investors need to be careful, Mobius said.

Further declines in China’s yuan are also likely if a trade war with the US continues, he said.