Markets fall again as Turkish lira hits new low

Turkey’s currency fell to another record low Monday, hitting stocks in North America, Europe and Asia and raising fears that the country is on the verge of an economic meltdown that could spread to other emerging markets.

The crisis, caused by rising inflation, economic mismanagement by the Turkish government and tensions with the U.S., has raised concerns over whether emerging economies that have benefited in recent years from foreign investment may be vulnerable.

Rising interest rates in the U.S. and in Europe have made investors less tolerant of emerging markets. Foreign investors piled money into Turkish assets for years, lured by what appeared to be a stable economy and higher returns. But as interest rates rise in countries seen as safer, the relative attractiveness of riskier investments wanes. A crisis like the one in Turkey may be all it takes to send them fleeing.

Canada’s main stock index closed in the red Monday along with U.S. markets as concerns about economic instability in Turkey continued to weigh globally.

“The clear headliner today that’s sapping a bit of the optimism in the markets is worries about what’s happening in Turkey and the plunge in their currency,” said Craig Fehr, a Canadian markets strategist with Edward Jones in St. Louis.

Markets were rattled late last week as concerns over the country’s monetary policy debt levels, and a dispute with the U.S. sent the Turkish lira sharply down. Still, Fehr said the country’s credit system isn’t integrated enough into the global system to cause major shocks. “While there can be some pain from the drop in the currency, and some pain from any potential debt challenges there, I don’t view this as a catalyst that would spark contagion in global markets.”

Turkey’s central bank announced measures Monday to help the country’s banks manage their liquidity, but the Turkish lira and Turkey’s stock market continued to dip.

North American markets had turned slightly positive on news of the action but ended down Monday.

YASIN AKGUL/AFP/GETTY IMAGES A woman sits beside a digital billboard giving updates on various currencies and the Turkish stock exchange in Istanbul on Monday. The record plunge of Turkey’s currency, the lira, has raised concerns of a contagion hitting emerging economies.