Lira meltdown ‘may be canary in coal mine’
THE Turkish lira meltdown wiped almost $300bn (£235bn) off the value of crisis-hit emerging markets amid fears the crunch could be the “canary in the coal mine” for a slump in global markets.
Some $26bn has been yanked out of worldwide debt, equity and money market funds in the past week, EPFR data indicated, while investors rushed to protect themselves from debt defaults by buying insurance. Turkey’s troubles could be the first sign that the long Bull Run in global bonds is coming to an end, Bank of America Merrill Lynch analysts believe.
“The forthcoming contraction of global liquidity has been sniffed out by the classic ‘canary-in-the-coal mine’ asset class of emerging markets,” warned Michael Hartnett. The lira collapsed to record lows last Monday as fears mounted over the government’s failure to tackle rampant inflation and Turkey’s relations with the Trump administration soured. Signs of stuttering Chinese growth and trade war worries also helped tip emerging markets stocks into bear market territory, knocking $278bn off the MSCI Emerging Markets Index’s value in a week.
The cost of insuring against a default on some emerging markets’ government debt surged. Turkish five-year credit default swaps rocketed as much as 51pc, while insurance on South African debt jumped 17pc in a week.