In the aftermath of the unsuccessful coup attempt in Turkey last weekend, we would like to relate our insights on the current situation and the potential impact on investors.
The situation in Turkey stabilized in the days following last weekend’s apparent coup attempt, and the securities markets were open and operating on Monday, July 18. However, political turmoil leaves Turkey’s economy vulnerable because it relies on portfolio and equity flows to finance its current-account shortfall (the difference between the value of goods exported versus those imported).
These developments have brought a new level of risk to the Turkish equity market, which dropped approximately 7% on the first day. While the Turkish lira has regained some of the losses suffered after the news of the coup, it is also lower relative to other major global currencies. Moody’s, the credit rating agency, has announced it has placed the credit rating on Turkey’s sovereign debt on review for a possible downgrade. While this review is being conducted, it is likely that yields on Turkish debt will increase while prices decline.
We believe the events will likely have a limited negative impact on consumer confidence and we’re watching to see if they dampen investment sentiment among investors. We expect the tourism and aviation industries in Turkey will be further depressed.
We currently have modest levels of investment in Turkey in our global and non-U.S. equity and fixed income portfolios. We will, of course, continue to monitor the ongoing situation with an eye to adjusting our holdings if we consider that necessary. Should the increased uncertainty persist—impacting the visibility of our positions—we would consider reducing our exposure to Turkey.
In the aftermath of the Brexit vote, it was readily apparent that the global appetite for risk remains high amid further monetary easing expectations from major central banks and expectations that the U.S. Federal Reserve (Fed) will likely hold off on rate hikes for some time. We think this risk appetite should help dampen any excessive market volatility in Turkey.
To conclude, there have been a number of important market events this year, including Chinese market volatility, Brazil’s corruption scandals and presidential impeachment, and the British vote to exit the European Union. It is important to remember that situations of elevated volatility bring both opportunity and risk. Volatility moves in both directions. This event simply confirms that emerging markets are, in fact, still emerging given their relatively young demographics and political systems, and volatility is an inevitable part of the of emerging markets investing landscape.
Find more insight on global events and the potential impact on investors.
- CIO Insights: The Economy Is Truly Global
- Our Views on the Brexit Vote
- CIO Insights: Macro Events in a Micro World
International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The opinions expressed are those of American Century Investments and are no guarantee of the future performance of any American Century Investments fund. This information is for educational purposes only and is not intended as investment advice.