Lira melt­down ‘may be ca­nary in coal mine’

The Sunday Telegraph - Money & Business - - Front Page - By Tom Rees and Tim Wal­lace

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.

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